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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: FiveFour who wrote (13588)	10/18/2004 1:48:13 AM
From: mishedlo	Respond to of 116555

Australia may be heading for recession in three years, forecaster warns Monday, October 18, 2004 3:01:59 AM afxpress.com SYDNEY (AFX) - Australia is heading for a substantial rise in its interest rates followed by recession within three years, a long term analysis by economic forecaster BIS Shrapnel warned The report, forecasting economic conditions for the next 15 years, said it was a myth to think that Australia's so-called golden age of moderate growth, low inflation and low interest rates could continue indefinitely BIS Shrapnel senior economist Matthew Hassan said the Reserve Bank of Australia would be forced to hike official interest rates by between two and three percentage points from its current level of 5.25 pct in the next three years Hassan said the rate rises would be driven by expected record low unemployment levels in the 2005/06 financial year, with many businesses likely to be forced to pay higher wages because of the lack of skilled workers As a result, higher wages would cause prices of various goods and services to rise in 2006 "These two years of inflationary growth will be the trigger for substantial interest rate rises, with the official cash rate expected to peak at around 8.0 pct in late 2006," Hassan said With businesses rushing to pour money into their activities to meet an expected surge in demand, there would be an inevitable investment slump in 2007 "The tightening in interest rates will only really hit once demand starts to slow and over-investment becomes apparent," Hassan said "But once it does, high rates will trigger a sharp decline in construction and investment, with the cumulative effect sending the economy into recession in 2007/08 - a recession that, given the internal logic of investment cycles as asset price bubbles, will be impossible to avoid." The report said the surge in business investment was expected to push economic growth to 4.8 pct in 2004/05 from 3.6 pct last financial year, with growth averaging 4.0 pct in the following two years However, it flagged that growth would contract by 0.1 pct in 2007/08 and remain subdued the following year The report followed a warning by Federal Treasurer Peter Costello last week that record high oil prices were a serious risk to the economy and Treasury forecasts for economic growth of 3.5 pct a year for the next four years were optimistic