Growth of Australia’s A$1 trillion economy will slow to its weakest pace in nearly 20 years in 2009 as the global financial crisis slams the brakes on confidence and activity, according to a survey by Dow Jones Newswires.

The slowdown will erase all gains in the job market over the last four and half years and expose many Australians to job insecurity for the first time in their working lives.

Economic growth is expected to slow to an annual pace of 1.8% in year average terms in 2009, from 2.7% in the second quarter of 2008, according to a survey of 16 economists Friday.

Unemployment will rise to 5.7% by the end of 2009, its highest level since February 2004, up from 4.3% in September.

However, the economy appears set to avoid the crushing long-term effects of a recession, which other major economies are now confronting.

Hefty interest rates cuts since September, a massive devaluation of the Australian dollar, and a A$10.4 billion fiscal stimulus package will help the economy to ride out the global tempest, economists say.

The survey points to a recovery in growth to 2.5% in 2010, but as is the case with sharp economic downturns, unemployment will be slow to fall. Economists’ forecasts center on a jobless rate still around 5.7% by the end of 2010.

Treasurer Wayne Swan will update the government’s economic forecasts in November.

David DeGaris, senior economist at NabCapital said typically employment growth will take time to recover from a sharp downturn in the economy.

“The downturn is certainly going to involve retrenchment and job losses,” he said.

A technical recession, where the economy contracts in two consecutive quarters can’t be ruled out entirely, he said. NabCapital expects the economy to grow by just 1.2% in the year to Sept. 30, 2009.

“That will be the low point,” DeGaris said. A recession “is always going to be a possibility with the economy’s growth skirting close to zero every quarter.”

Stephen Walters, chief economist at JPMorgan said the economy is set to shed one million jobs over the next two years as investment falls flat.

However, unemployment will not move back above 10%, which was a feature of recessions in the early 1990s and the early 1980s, he said.

Both the government and the Reserve Bank of Australia have room to move on policy if needed. A budget deficit would not necessarily be a bad thing and the Reserve Bank of Australia looks set to cut its official cash rate target by a further 150 basis points in coming months, Walters said.

The RBA will be assertive about cutting interest rates further if it has to, Walters said.

China’s economy, which soaks up a lot of Australian mining and energy exports, is also set to grow on average at 9.0% per year, he said.

              Economic indicators (% change)
           Gross Domestic Product   Unemployment Rate
             FY09   CY09   CY10    Mid 09 End 09 End 10
   AMP        1.7    1.8    2.3    5.3    6.0    6.5
   ANZ        1.5    1.8    2.0    5.3    5.8    6.4
   Ausbil     2.0    1.8    2.2    5.5    6.0    5.25
   BT         2.3    2.0    2.5    5.0    5.25   5.0
   Citi       1.5    1.7    2.2    5.0    5.5    6.7
   CBA        2.2    2.5    3.0    5.2    5.0    5.0
   GSJBW      0.6    1.9    nf     6.3    6.5    nf
   JPMorgan   1.8    1.4    2.5    6.1    7.6    9.0
   Macquarie  1.8    1.8    2.8    5.5    5.8    6.0
   Merrill    1.8    1.7    1.9    5.1    5.6    5.5
   Moodys     1.2    1.8    2.9    4.8    5.0    5.3
   NAB        1.6    1.3    2.0    5.4    5.8    6.2
   Nomura     nf     2.5    3.0    nf     nf     nf
   RBC        1.8    2.4    2.0    4.6    5.2    5.2
   TD         1.7    2.0    3.5    5.0    5.6    5.5
   Westpac    2.4    2.2    2.8    5.3    5.7    5.9
   Median     1.8    1.8    2.5    5.3    5.7.   5.7 

Source: http://www.djnewswires.com/eu

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