Reserve Bank of Australia (RBA) governor Glenn Stevens sees little reason to wait until the next national accounts.
He has declared Australia is already in recession.
But in a speech in Adelaide, the governor was fairly upbeat about the outlook, saying given Australia’s fundamentals, there was still plenty to be confident about.
Economists said his comments, and minutes of the last RBA board meeting also released on Tuesday, suggested the central bank won’t be rushing in and cutting the cash rate any time soon.
Mr Stevens confirmed what many economists have suspected for some time, saying “it is very rare for Australia to escape an international downturn and there is no precedent for us escaping altogether one of this magnitude”.
“Whether or not the next GDP statistic, which is due in early June, shows a further contraction, I think a reasonable person looking at all the information that we have available now would come to the conclusion that Australia too is in recession,” he told a conference.
A recession is defined by two consecutive quarters of negative growth.
Australia posted a quarter of negative growth in the final three months of last year, and a second will be revealed in the March quarter national accounts on June 3, if Mr Stevens is correct.
Prime Minister Kevin Rudd, who on Monday conceded that Australia would likely be dragged into a global recession, said more economic stimulus would be forthcoming in the May 12 budget.
“As we frame the budget, we’re going to have to make even stronger our economic stimulus strategy because unemployment will rise even further,” Mr Rudd told reporters in Perth.
“As prime minister of Australia, I can’t wish this global economic recession away.”
Opposition treasury spokesman Joe Hockey was unsurprised by Mr Rudd’s eagerness to spend even more money.
“They are spending too much money, and they are spending it unwisely in many areas, and effectively they are trying to borrow their way out of this downturn,” Mr Hockey told Sky News.
“He’s Santa Claus on steroids. He’s given more gifts away than anyone has seen in a generation.”
Minutes from the last RBA board meeting, when the central bank cut the cash rate by 25 basis points to 3.0 per cent, were also released on Tuesday.
It showed that the decision to ease policy was again a close call.
Board members noted that there had already been a major easing in both monetary and fiscal policy in the past six months, and that interest rates on loans to households and many businesses are at historical lows.
“This stimulus, together with the substantial fiscal measures, would support demand and help to foster economic recovery in due course,” the minutes said.
“Nonetheless, the effect of recent international and domestic information had been that the near-term outlook for demand and output in Australia was now weaker than earlier expected, though a recovery in demand was likely towards the end of the year.
“As such, members saw scope for a modest reduction in the cash rate.”
JP Morgan economist Helen Kevans said the RBA may hold off cutting the cash rate again until August, keeping something in reserve for when unemployment soars.
“The risk that the next rate cut could come as soon as the May board meeting has deteriorated significantly, with today’s minutes suggesting that RBA officials are in no hurry to provide further stimulus to the economy at this point in time,” Ms Kevans said.
“A move in August would allow time to assess the impact of the policy stimulus already delivered and gauge the impact of any further reaction from the commercial banks to the recent rise in bank funding costs.”