Australian economic party over, says forecaster

CANBERRA - The Australian economic party is over and might even end up in a recession, one of the country's most respected forecasters has warned.

Access Economics, in its latest business outlook, today warned a combination of bad policy and bad luck may be enough to tip Australia into recession for the first time since the early 1990s.

It said the hike in interest rates by the Reserve Bank last month, on top of an already slowing economy, combined with a lack of policy development by federal and state governments, would be enough to stall the economy.

With the Reserve a 50-50 chance to lift rates again this month -- in a bid to head off wages-led inflation -- Access said even if the country avoided a recession the days of stellar economic growth were over.

"Australia's growth party is over," Access said.

"There is therefore a risk that, in trying to slow the economy, the Reserve turns 2005 output growth into roadkill.

"If so, then output growth would continue to crawl through 2005, unemployment would stop falling (and may well increase), housing prices would resume falling and the Reserve would eventually reverse.

"A pause in recent growth via a recession may therefore be very unlikely, but it cannot be completely ruled out."

Although critical of the Reserve Bank and its rates strategy, Access said much of the blame for the economic problems now facing the country had to be sheeted home to federal and state governments.

It said the supply side of the economy was hitting a series of walls that could only be pulled aside by policies in areas such as infrastructure and skills development.

"Governments must encourage working by cutting effective marginal tax rates," it said.

"And governments could also do the sorts of things everybody agrees need doing but no-one has the courage to do, such as raising the age at which super and pensions can be accessed, toughening eligibility for the disability pension and championing genuine workplace relations reform."

Access warned the current account deficit, now over seven per cent of GDP, would take some time to fall.

While the global economy would continue to perform strongly, this was mostly due to just two markets -- China and the United States.

But it said a global economic bust was a chance because of the drag inflicted by Japan and Europe, and the failure of the US to tackle its current account deficit.

And although Australian commodity exporters were doing well from strong demand out of China, other competitor nations -- such as Brazil -- were bringing new mines into operation.

This would eventually push prices for such commodities as iron ore down, hitting Australian exports.

Access said it expects GDP this financial year to fall to 2.0 percent (from 4.1 percent), and work its way back up to 2.8 per cent in 2005-06.

It is tipping unemployment to stay at 5.1 percent before lifting to 5.8 percent in 2006-07, while average weekly earnings should grow 4.2 percent next financial year.

Private consumption is tipped to fall from 3.9 percent this financial year to 2.5 percent in 2006-07.

- AAP