The deputy prime minister of Australia, Wayne Swan attacked Goldman Sachs Group Inc. (NYSE:GS) analyst for creating overly pessimistic view of the Australian economy. Goldman Sachs Group Inc. (NYSE:GS) economist Tim Toohey said in a research report (embedded below) yesterday that the resource-rich economy has a 20 percent chance of falling into a recession. Australia has posted uninterrupted economic growth for more than 21 years.
Australia’s Slowing Economy
Wayne Swan also slapped domestic media for blindly taking the bait and splashing the recession word all over as if it was a credible view. Tim Toohey said in Tuesday’s report that Australia’s mining investment boom is fading rapidly, and other businesses are far too slow to compensate for that. He said increasing business costs, rather high Australian dollar and falling commodity will fuel the recession. Wayne said such half-cooked misrepresentations of the Australian economy are “incredibly reckless.”
Wayne Swan said that, over the past five years, the US investment bank has three times predicted the same chance of recession. Those predictions never eventuated. Tim Toohey said that he expects the Reserve Bank of Australia to lower the cash rate to 2.25 percent. That will put further pressure on the Australian dollar. He expects the Australian dollar to fall to 85 cents versus the U.S. dollar over the next 12 months, down from his original forecast of 90 cents.
Swan’s Statement Aimed At Elections?
James Glynn of the Wall Street Journal says that Wayne Swan’s reaction is understandable as he is already under a critical political situation. As the September 14 election in Australia approaches, reports suggest that the Labor government is set to face a landslide defeat. The talks of a recession only make the situation worse for Labor lawmakers, including Wayne Swan.
The Australian central bank has already cut the interest rates to record lows. The RBA has indicated that it may further slash the rates to boost consumer spending. Australia’s exports are shrinking, as growth in its biggest market China slows. The other economic activities like new home construction and consumer spending are unlikely to offset the decline in mining investments, as mining boom itself has been phenomenal.
Australian economy grew at 2.5 percent during the first quarter, well below its 10-year average of 3 percent.