Recession looks inevitable for Australia as economy contracts

There are fears for Australia after its economy contracted by 0.5% in the October to December period last year - the first time in eight years that the economy had slipped into negative territory.

In comparison, the Japanese, the US and the UK economies experienced a fall of 3.3%, 1.6% and 1.5% respectively in the fourth quarter of 2008.

An increase of 0.2% was widely expected by analysts and now puts the economy on the brink of recession. Should Australia enter recession, it would be its first in 18 years.

A country is considered to be in recession when it experiences two consecutive quarters of declining economic output.

Last month, the International Monetary Fund warned that Australia’s economy would contract 0.2% in 2009 and would join other major economies in recession.

The economy has been hit hard by the sharp fall in commodity prices, however, it has performed better than other economies.

The Australian Government recently approved an AUS$42 billion (£19 billion) stimulus package, which has been designed to help the country weather the economic downturn.

The plan involves for AUS28.8 billion to be set aside for schools, housing and roads, while the remaining funds will provide a cash boost to low and middle-income earners. It was also hoped the plan would help support and sustain up to 90,000 jobs over the next two years.

Yesterday, The Reserve Bank of Australia chose to retain interest rates at a level of 3.25% - a level not seen since the early 1960s.

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