Australia could be in recession for the first time in 17 years by Christmas, financial services firm Goldman Sachs JBWere says.
September quarter economic indicators point to an ongoing deterioration in growth on the back of a very weak June quarter, Goldman's chief economist Tim Toohey said on Australia's ABC TV last night.
"We think it's quite likely that by the time Christmas rolls around, Australia will be in its first recession since this expansion began 17 years ago," he said.
But with more interest rate cuts on the horizon, any recession was likely to be relatively short by historical standards, he said.
He predicted a further cut in the official cash rate of 1.5 percentage points to 4.5 per cent by March 2009.
Borrowers could see more relief from the US markets allowing Australia banks to pass on most of the predicted rate cut, he said.
"There's a very important development that's occurring in terms of opening up of the commercial paper markets in the US. If those spreads start to come in, we actually do think that the spreads that matter for the banks or the banking system will in time start to come down as well."
The Australian federal government's A$10.4 billion (A$11.82 billion) spending package for pensioners, families and first home buyers - amounting to slightly less than one per cent of GDP - would make an impact from December.
"It starts really en masse on December 8 ... by then we think the economy ought to be slowing quite sharply," Toohey said.
Goldman is also tipping business investment to be "slightly negative" during 2009.
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