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Is Australia headed for another recession?

9News.com.au logo9News.com.au 6/06/2019 Matt Dunn

Josh Frydenberg wearing a suit and tie: Federal Treasurer Josh Frydenberg. © AAP Federal Treasurer Josh Frydenberg. The Australian economy has slowed to the weakest level since the global financial crisis a decade ago, sparking fears of a recession.

Australia’s economy grew by 1.8 per cent over the past year and by just 0.4 per cent in the three months to March, marking the weakest activity since September 2009.

While the quarterly figure was an improvement from the 0.2 per cent growth in final quarter of last year, it still fell below market expectations.

The data was released just 24 hours after the Reserve Bank cut interest rates to an all-time low of 1.25 per cent.

Treasurer Josh Frydenberg argued the GDP result was "within the range of market expectations" and said the government's planned tax cuts should boost the economy after July 1.

"The personal income tax cuts announced in the budget, along with yesterday's decision by the RBA to cut interest rates will provide a timely boost to household disposal income," he said.

“Our record $100 billion infrastructure spending program, our plan for up to 80,000 new apprenticeships, together with the increase and expansion of the instant asset write-off to businesses with a turnover of up to $50 million will also enhance economic activity as part of the Morrison government’s pro-growth economic plan.”

Nine finance editor Ross Greenwood said a lack of household spending was a major contributing factor to the economic downturn.

“What people miss out on here is that 60 per cent of Australia's economy is household spending. If households put on the brakes, guess what, the economy starts to cool down,” he told Today.

Greenwood said the election could have also played a large role in the grim outlook following the latest data, which was taken from the three months to March.

“People might have been concerned about the Labor policies which were radical,” he said.

“[We will see later this year] whether things such as the Reserve Bank's interest rate cut and whether tax cuts that are going to come after July 1 really do start to change the behaviour and the confidence of Australian households.

Greenwood added the worst-case scenario for Australia would be for unemployment to rise.

“If that happens, then the economy could go backwards at a very sharp rate of knots which is a reason why there's been urgency from the Reserve Bank in cutting interest rates and why these tax cuts now going through our Parliament are so important for the nation,” he said.

RBA governor Philip Lowe suggested more rate cuts are likely as the bank seeks to drive down the unemployment rate, which is sitting at 5.2 per cent.

He said the government should consider "spending on infrastructure" and "structural policies that support firms expanding, investing and innovating".

Greenwood added the government must get people confident to start spending if it wants to start to boost the economy again.

“Confidence is key,” he said. 

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