(Corrects para 9 to show last GDP drop was in 2000, not 1991)
* Q4 GDP -0.5 qtr/qtr, weaker than forecasts of 0.2 pct
rise
* GDP growth just 0.3 pct yr/yr, vs forecast of 1.2 pct
* Market prices back in chance of 50 bps rate cut in April
* Survey shows service industry slumped in February
(Corrects para 9 to show last GDP drop was in 2000, not 1991)
(Adds Swan quote, graphic)
By Wayne Cole
SYDNEY, March 4 (Reuters) - Australia's economy
unexpectedly shrank for the first time in eight years last
quarter as chastened consumers chose to save rather than spend,
reviving pressure for yet more monetary and fiscal stimulus.
The Australian dollar slid while bill futures surged as
investors wagered the Reserve Bank of Australia (RBA) might
come to regret its decision this week not to cut rates and so
now would have to do so in April.
"A massively, massively weak number and this is the
necessary condition for the first leg of a recession," said
Joshua Williamson, a senior strategist at TD Securities.
The common definition of recession is two successive
quarters of contraction in gross domestic product and the last
time Australia suffered that was in 1991.
"Global weakness has now extended well and truly to
Australia and should add to expectations for more aggressive
rate easings in coming months, especially given the RBA's
decision yesterday to keep rates on hold," said Williamson.
Investors rushed to price back in the prospect of a 50
basis point cut <0#YIB:> in the 3.25 percent cash rate when the
RBA next meets on April 7, and suggested it could approach 2.0
percent by mid-year.
Wednesday's report showed GDP, essentially the value of all
goods and services produced in Australia, fell 0.5 percent last
quarter from the third quarter, when it rose 0.1 percent.
Companies cut production and stocks and household
consumption was static, wiping out gains from exports.
The result was well below forecasts of 0.2 percent growth and
was the first drop since the last quarter of 2000, when the
introduction of a sales tax caused a one-off slump in demand.
Treasurer Wayne Swan laid the blame on the rest of the
world.
"There has just been such a savage contraction in global
demand," he told reporters. "It is impacting and ripping
through economies in all sorts of ways."
But he also highlighted how Australia had fared better than
others. Japan saw GDP fall 3.3 percent last quarter, while
Korea suffered a 5.6 percent drop, the euro area 1.5 percent
and the United States 1.6 percent.
For a table on recessions among Australia's trading
partners, see [ID:nSYD505428]. For a graphic of Australian GDP
growth see:
here
HARD TO STOMACH
The weak result challenged the RBA's argument that
Australia would ride out the global storm relatively well.
The economy expanded by just 0.3 percent compared to the same
period in 2007, down from 1.8 percent the previous quarter.
That was tough to stomach for a country that has grown used to
average growth of more than 3 percent in the past 17 years.
"The Australian economy looks to be flirting with
recession, despite obvious support and assistance from policy
stimulus," said Su-Lin Ong, senior economist at RBC Capital
Markets. "And you've got to think that there's a risk that the
first half of this year is pretty weak as well."
The central bank cut rates by 400 basis points between
September and February, while the government announced fiscal
packages worth over A$52 billion ($33 billion).
GDP for all of 2008 amounted to A$1.09 trillion in inflation
adjusted dollars, or $50,925 for every man, woman and child in
the country.
Household consumption surprised by barely growing in the
quarter, even though government hand outs worth more than A$8
billion boosted retail sales sharply in December.
Instead, cautious consumers chose to save rather than spend
with the household saving ratio surging to 8.5 percent, up from
just 0.5 percent at the start of 2008 and the highest since
1990.
Firms were also bracing for bad times by cutting production
and running down stocks at a furious pace. In all, inventories
took a savage 1.7 percentage points from GDP in the quarter.
That more than wiped out a much improved trade performance,
with exports outstripping imports enough to add 1.5 percentage
points to growth.
There were also signs of worse to come from an industry
survey of the country's service sector on Wednesday. Firms from
retailers to restaurants, banks and estate agents reported big
falls in sales, new orders and employment.
The Australian Industry Group (AiG)-Commonwealth Bank
Performance of Services Index (PSI) dived 8.8 points to 32.2 in
February, with all sectors reporting weakness in demand.
"There is scope for further rate reductions," said Heather
Ridout, chief executive of AiG. "Monetary policy will need to
remain agile in the face of numbers such as these."
($1=1.561 Australian Dollar)
(Editing by Jan Dahinten)
