Risk of recession very high: Oliver

equity markets interest rates

4 August 2008
| By Benjamin Levy |
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Dr.Shane Oliver

The recent stream of poor economic data shows Australia is under serious threat of a recession, according to AMP Capital Investors chief economist Dr Shane Oliver.

“The flow of poor economic data is now becoming an avalanche and it seems quite clear that the risk of recession is now very high,” Oliver said.

Oliver recommended that interest rates be cut by the Reserve Bank of Australia (RBA) as soon as possible to increase spending.

“In our view, the slump in the economy is now occurring so rapidly that the RBA should already be cutting interest rates,” Oliver said.

The Reserve Bank is expected to leave interest rates on hold following its monthly board meeting.

“The money market has priced in a 20 per cent chance of an RBA rate cut on Tuesday and a 90 per cent probability of a move by October.”

The latest economic data shows a sharp fall in retail sales, with June recording the biggest slump in real terms since the introduction of the GST. Housing approvals also fell in June while private sector credit slowed.

Oliver said that while equity markets would continue to be volatile in the coming months, a rally may still occur later in the year.

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