ASX tipped to dive by 25pc next year

Australia's benchmark stock index could fall by almost a quarter next year as consumer spending slows, according to Gerard Minack, chief equity strategist at ABN Amro.

Minack forecasts the S&P/ASX 200 Index could slide to 3500 from its current level of 3929 by mid-2005, and to as low as 3000 by the year's end.

A slowdown in consumer spending, driven by "excessive" debt, and a tailoff in housing prices this year, will drive the index lower, he said.

Consumer-related stocks such as banks, media and retailers might lead the decline, he said.

"After more than a decade of plenty, the curtain is about to come down," said Minack at a media briefing in Sydney. "Every indicator is ringing alarm bells."

The S&P/ASX 200 is heading for a gain of 20 per cent this year, its biggest increase in 11 years, as the economy grew at the fastest annual rate in almost two years and second-half profits jumped by the most in four years.

But retail sales unexpectedly fell by 0.7 per cent in October, and economic growth more than halved in the third quarter to its slowest pace in almost four years as home building, company inventories and exports declined, the Australian Bureau of Statistics said.

"We're already seeing some signs that all is not well, particularly in retail, which often feels a cutback in consumer spending first.

"It won't take much bad news for it to unravel, and I believe that could come as soon as next year," Minack said.

- BLOOMBERG