The Australian economy is expected to contract over calendar 2009 amid falling demand for exports and weak business investment, a report says.

The economy is expected to record a contraction of 0.9 per cent in 2009 in year-average terms, credit reporting firm Dun and Bradstreet (D&B) says in its latest Global Economic and Risk Outlook report.

The report cited sharp falls in exports and lack of available credit as a drag on the economy.

It said companies and households were consolidating their balance sheets by paying down debt, which dampened consumer spending and kept a lid on business investment.

“With company profitability hit and investment demand sharply lower, we expect the impact of the worsening terms of trade to drag the economy down further,” the report said.

Growth could decline by more than expected if the global economic recovery took longer than expected and demand for commodities stayed weak, the report also said.

D&B forecast gross domestic product (GDP) to grow by 0.7 per cent in 2010, and the unemployment rate to reach 8.5 per cent by the end of next year, a figure in line with government forecasts for the jobless rate.

JPMorgan economists on Monday reaffirmed their forecast of a nine per cent jobless rate during 2010.

JPMorgan chief economist Stephen Walters said employers’ initial cost-saving measures – reducing overtime, hours and shifts – would prove insufficient to retain profit margins.

“Eventually, firms turn to reducing staffing, while also capping hours and shifts,” Mr Walters wrote in a research note.

D&B chief executive Christine Christian said the global outlook was “overwhelmingly negative” despite recent suggestions the global economy was on a path to recovery.

Ms Christian said Australia remained in a better position to deal with the global economic downturn, given a strong financial sector and the quick actions of policy makers.

“The government and central bank acted quickly to implement a macroeconomic policy response,” Ms Christian said in a statement.

“Therefore, the economic decline shouldn’t be as steep as other stgeloped economies are experiencing.”

The growing optimism that the pace of decline in global economies was levelling off, fuelled by encouraging news from China and some positive economic data, has been reflected in the strong performance on equity markets.

Locally, the All Ordinaries index is up about 30 per cent since reaching a low of 3111 points in March this year.

Earlier this month the index broke above 4000 points for the first time since November.

It is a similar story on Wall Street.

Ms Christian said the upturn in sentiment was a “correction to market overreaction rather than the start of a broad-based economic recovery”.

“Although we are cautiously optimistic that the pace of the global economic deceleration is weakening, the outlook for the global economy over 2009-10 remains poor,” Ms Christian said.

“We anticipate a deep contraction of global GDP in 2009 and only a very modest recovery in 2010.”