According to 23 economists from major financial institutions who took part in the Australian Financial Review quarterly economists survey, Australia has avoided the worst of the global financial crisis but will be unable to avoid the recessions taking hold in the US, Europe, Japan, the United Kingdom, New Zealand and Singapore.

Last week, the federal government revised its forecast for economic growth this financial year from 2.75 per cent to just 2 per cent. The median forecast from the private sector economists surveyed is 1.6 per cent growth for 2008-09 and 1.5 per cent for calendar 2009, down from 2.35 per cent for the year ending December 31.

The consensus view is that the Australian economy will expand slightly but it will still be a tough year for many sectors of the economy. Citigroup expects gross domestic product will expand by just 0.6 per cent in 2009 and that there will be two quarters of zero growth. Stephen Halmarick, Citigroup’s co-head of economic and market analysis, says “growth is slowing significantly and it will feel very bad for many sectors of the economy”. 

The Reserve Bank of Australia and the Federal Government are expected to continue use the tools of monetary and fiscal policy to fight off a recession. Further cuts in the cash rate are expected with the consensus predicting that the cash rate will fall to 4.25 per cent within three months; a level last reached in December 2001.

Some analysts believe a further cut will be necessary; bringing the cash rate down to 4 per cent in six months’ time.

Regarding inflation, the median forecast among the economists is for underlying inflation in year-on-year terms is to peak at 4.5 per cent by the December quarter this year, before easing to 3.5 per cent by mid-2009.