A recession for Australia?
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Christine St Anne is Morningstar's online editor.
This week, Bank of America Merrill Lynch Australia chief economist Saul Eslake was the latest analyst to flag the possibility of an Australian recession. Eslake reckons Australia faces a 25 per cent chance of a recession and forecasts economic growth of 2 per cent in 2015.
Eslake joins a number of other economists this camp. This group believes the non-mining sectors have not been as responsive as expected to recent interest-rate cuts.
And with an Australian dollar that is still relatively high and a mining boom that has passed its peak, Australia faces a real risk to its growth levels.
With an austere budget, the closure of Ford's Australian manufacturing plants and a warring parliament, it's not surprising that this rather gloomy forecast has resonated among the Australian business and consumer sectors.
But there are optimists just as there are doomsayers. While HSBC has revised its growth forecasts lower, the bank does not see an impending recession.
A weaker recovery in Asia, the slower-than-expected rebalancing from mining to non-mining, and a persistently high Australian dollar has pushed down HSBC's growth forecasts for 2013 from 2.9 per cent to 2.5 per cent. For 2014, HSBC has revised its forecasts from 3.1 per cent to 2.8 per cent.
Despite the lower growth forecasts, HSBC chief economist Paul Bloxham is "cautiously optimistic". Although households and the housing market have been slow to react to the interest-rate cuts, Bloxham is confident that demand will eventually lift.
Bloxham notes that the mining sector still comprises less than 20 per cent of the economy.
"While the doomsayers are suggesting that the end of the mining investment boom will leave the economy with little to replace it, we remain cautiously optimistic that the other 80 per cent of the economy will be able to grow sufficiently to maintain solid growth in Australia," he says.
"We expect low rates to continue to lift household demand, despite the fact the latest GDP numbers suggest this has been slow to get going. We are not forecasting an impending recession."
Bloxham predicts a fall in the Australian dollar and further interest-rate cuts will eventually support a rebalancing of Australia's growth.
AMP Capital head of investment strategy Shane Oliver is similarly optimistic. In fact, Oliver has four reasons to be positive about the Australian economy.
Like Bloxham, Oliver says lower interest rates are gradually starting to work.