There is a risk of recession in Australia

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Australia might be exposed to a significant risk of recession. The country’s central bank has already cut interest rates to 2,75% in order to try to revive the economy but some economists think that it should hurry up with other measures as well because it is running out of time.

The international investment bank Goldman Sachs has stated that there is a one-in-five chance that the Australian economy dives into recession in 2014. A risk of 20% may not seem very dangerous, but according to Goldman Sachs only once in the postwar period had a probability higher than this not resulted in a recession in Australia.

In addition to that, another major bank – Bank of America warned of the risk of recession in Australia. According to its chief economists, the increase of unemployment in the resource-rich province of Western Australian already resembles recession.

The economic sectors that are most sensitive to interest rate cuts such as consumer spending and the manufacturing did not respond to the new measures of the Central Bank fast enough. The reason for this was the strong Australian dollar which has reached record highs and diminishes the competitiveness of the country’s exports.

With the slowing growth of the Chinese economy, Australia no longer has the advantage of its booming mining sector, whose main client was China. To be sure, economists think Australia has headroom to avoid a recession, but worry this may be narrowing.

Goldman Sachs says a combination of better global growth, lower interest rates and a declining local currency could be enough to keep the economy growing. But it lowered its forecast for economic growth to 1.9% in 2014, from a previous projection of 2.7%.

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