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Aussie economy falls in Q4 as exports and housing slumped

AUSTRALIA'S economy unexpectedly shrank in the fourth quarter for the first time in eight years as exports and housing slumped, increasing pressure on the central bank to resume cutting interest rates.

Gross domestic product fell 0.5 percent from the third quarter, when it raised 0.1 percent, the Bureau of Statistics said in Sydney yesterday. The median estimate of 23 economists surveyed by Bloomberg News was for 0.2 percent growth.

The nation's currency dropped on concern Australia is now in its first recession in two decades. Central bank Assistant Governor Malcolm Edey, part of a board that slashed the benchmark interest rate by a record 4 percentage points to a 45-year low of 3.25 percent before pausing this week, said yesterday the economy faces more "short-term weakness."

"The downturn has arrived," said David de Garis, a senior economist at National Australia Bank Ltd in Sydney. "The global recession will bear down on Australia's economy in 2009. There will be more Reserve Bank rate cuts later in the year."

Long growth

The Australian dollar dropped to 63.32 US cents 1:40pm in Sydney from 63.78 cents before yesterday's report, taking the currency's decline in the past 12 months to 32 percent. The benchmark S&P/ASX 200 stock index slid 1.4 percent, and is now down 15 percent this year after slumping 41 percent in 2008.

The Australian economy grew 0.3 percent in the fourth quarter from a year earlier to complete 17 years of expansion, the report showed. Economists tipped 1.2 percent growth.

Housing investment fell 1.2 percent, detracting 0.1 percentage points from growth in the quarter. Exports lost 0.8 percent, cutting 0.2 percentage points from GDP. A rundown in inventories detracted 1.4 percentage points. Consumer spending made no contribution to growth, the report showed.

"There are no quick fixes to the global recession, and many of its effects are yet to be fully felt," Treasurer Wayne Swan said in Canberra yesterday.

To stoke household spending, the government distributed A$8.9 billion (US$5.6 billion) in cash handouts in December, helping fuel a 3.8-percent surge in retail sales in that month. Prime Minister Kevin Rudd said last month he will spend another A$42 billion on infrastructure and bonuses to families.

The United States economy shrank at a 6.2-percent annual pace in the fourth quarter, the biggest contraction since 1982. Japan's economy contracted at the fastest pace since the 1974 oil shock. Exports from China, Australia's biggest trading partner, slumped 17.5 percent in January, the most in almost 13 years.

The United Kingdom, Germany, France, Italy and Canada also contracted during the December quarter.

Central banks around the world have slashed borrowing costs to try to protect their economies.

The US Federal Reserve's benchmark rate is close to zero, the Bank of England's is the lowest since its creation in 1694 and the European Central Bank will probably trim its main rate today to 1.5 percent, the lowest level in 10 years of setting policy, economists said. "The Australian economy has not experienced the sort of large contraction seen elsewhere," central bank Governor Glenn Stevens said on Tuesday.


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