Aussie economy sliding towards recession as manufacturing slumps in shock PMI result

The Australian economy, the largest buyer of our exports, is sliding towards recession, economists are predicting. The Performance of Manufacturing Index result on Tuesday (left) was shockingly bad, while NAB's business confidence survey showed the worst results since the recession of the early 1990s. Many economists are now predicting further rate cuts by the Reserve Bank of Australia in early 2009 as slowing Chinese growth, falling commodity prices and depressed consumer spending hit the manufacturing, retail and mining sectors hard. The first RBA rates meeting is due on February 3. On Tuesday night, RBA Governor Glenn Stevens gave an end of year speech to the Australian Business Economists' annual dinner in which he warned of a very fast slowdown in China -- a key component for the Australian economy now it is its largest trading partner. "The most striking real economic fact of the past several months is not continued US economic weakness, but that China's economy has slowed much more quickly than anyone had forecast," Stevens said. "Our own estimates suggest that Chinese industrial production probably declined over the four months to October. Some of this might be attributable to the effects of the Olympics but surely not much. Some of it reflects the weakening in Chinese exports to major countries," Stevens said. "But more than that seems to have been occurring. I am not sure that many economic forecasters have fully appreciated this yet. There is every chance that the rate of growth of China's GDP is currently noticeably below the 8 per cent pace that is embodied in various forecasts for 2009." * This article was first published yesterday in our daily subscription newsletter for the banking and finance industries. The email costs NZ$365 per annum and carries exclusive news and analysis for New Zealand banking and finance industry executives, regulators and investors. Sign up for a free trial here.