Sydney - The former world-beating Australian economy has joined most of the rest of the developed world and shifted into reverse, official figures released Wednesday showed. National accounts showed the gross domestic product (GDP) contracted by 0.5 per cent in the quarter ending December.
The figures prompted falls in the stock market and in the value of the local currency as modest growth had been expected.
"Today's national accounts are a sobering reflection of the extremely difficult global environment in which Australia's economy is operating," Treasurer Wayne Swan said in a statement.
Swan said the figures would have been much worse without November's stimulus package that added 10.4 billion Australian dollars (6.5 billion US dollars) to demand.
He also noted that in the equivalent period GDP in Japan had contracted 3.3 per cent, 1.1 per cent in the United States and 5.6 per cent in South Korea.
Consultancy Access Economics director Chris Richardson said the figures showed Australia was belatedly joining its major trading partners in recession. "The December quarter was the start of bad news for Australia," he said.
Australia has been slow to join the global downturn because of its main export market, China, where demand for coal and iron ore has held up well. It has also been cocooned by long-term contract prices set when commodities were scarce.
While exports are holding up well, imports are down as companies and households postpone purchases. Dwindling imports in the December quarter saw the deficit in Australia's total payments to the rest of the world shrink to 2.1 per cent of GDP from 7 per cent of GDP in the previous quarter.
The government's November stimulus package has combined with a sharp fall in interest rates to cushion the impact of the global slowdown.
Interest rates were left unchanged at 3.25 per cent Tuesday. It was the first monthly meeting in five months that didn't end with a cut in the rate the Reserve Bank of Australia (RBA) charges banks for borrowing. Rates are now at a 45-year low.
The sharp decline in the value of the local currency also acted as a shock-absorber. In the December quarter the average value of the Australian dollar against the greenback was 67 US cents. This compares with 88 US cents in the previous quarter.
RBA assistant governor Malcolm Edey told a Sydney gathering that Australia was likely to weather the economic downturn better than others because it came into it with far more momentum and with a far stronger financial system. Of the 14 banks around the world rated AA, four are in Australia.
"An important difference is that the Australian financial system remains in much better shape than its international counterparts, and as a result of that we have been able to gain much more traction from cuts in official interest rates," Edey said. "This is in marked contrast to other countries, where banks have been more heavily affected by financial strains and the degree of pass-through has been much more limited."
But the global blues are about to catch up with Australia and send the country into recession. "Australia cannot continue to swim against the global economic tide," Prime Minister Kevin Rudd said. "Australia can reduce the impact, cushion the impact, of the global economic tide but we cannot stop it altogether."
