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Date Published : Friday, August 01, 2008
The latest economic figures from the Australian Bureau of Statistics (ABS) have prompted a number of analysts and experts to predict the Reserve Bank of Australia will have to start cutting interest rates in order to fend off a recession.
According to the Daily Telegraph, some economists have warned that urgent action is needed if Australia is to avoid a full-blown downturn.
The site said the ABS figures show that Australia's high base interest rate - which the RBA set at 7.25 per cent in March - is combining with climbing fuel and grocery costs, as well as "rapidly rising" rents to leave consumers' finances "battered".
As a result, consumer spending has dropped across the board as more households tighten the purse strings.
The knock-on effect from less spending will hit the country's biggest employment sector - retail - with some experts predicting job losses as a result.
Gerard Minack of Morgan Stanley believes "thousands" of posts could be under threat, the newspaper said.
"It can only be a matter of time before retailers - the largest single employer in the country - start to fire their workers," he commented.
The tighter economy is also fuelling greater borrowing, as credit card use and interest-free finance have both risen in recent months, the site noted.
AMP Capital's chief economist said the RBA has gone "too far" with its rate rises and cuts were now needed to stimulate spending.
Joshua Williamson of TD Securities agreed, adding that the economy has slowed down "more abruptly" than the RBA had forecast and it should therefore consider reducing interest rates to generate growth.
However, not everyone agrees. Commonwealth Securities economist Savanth Sebastian said: "We could well see a turnaround in the July figures because of the tax cuts and a falling oil price which will soon be reflected at the bowser."
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