Australia May Enter Recession For The First Time In 20 Years

November 11, 2008 10:08 a.m. EST

Canberra, Australia (AHN) - Australia is in danger of entering into a recession phase for the first time in two decades due to bleak export prospects. Behind the threat is a slowdown from China and other emerging markets which are Australia's main trading partners, principally for its main exports such as iron ore, coal, copper and cotton.

The bleak business outlook was reflected in business confidence in the country dropping to a record low of minus 29 in October from negative 8.4 in September. It is the 10th consecutive month that business confidence, measured by the National Australia Bank's survey, has plummeted.

NAB group chief economist Alan Oster, in a statement, explained, "Continuing volatility in global equity markets, emergency financial packages, falling commodity prices and continuing talk of a global recession have finally broken business optimism and now fear reigns supreme."

Australian firms, one after the other, are announcing cutbacks in production. On Tuesday Alumina said it will cut its aluminum production. Rio Tinto and Fortescue said Monday they will reduce by 10 percent iron-ore production due to slow demand in Beijing.

To counter the threat of recession, the Australian central bank reduced its key lending rate twice in nine weeks by 2 percentage points to 5.25 percent. The Reserve Bank of Australia also cut its 2008 growth forecast to 1.5 percent from 2 percent it made in August.

Prime Minister Kevin Rudd said the federal government is considering an economic stimulus plan worth $7.1 billion (10.4 billion Australian dollar) to help retirees, first-time home buyers and families cope up with higher cost of living and boost spending.