Pain won't last long   (Category: Financial News) THE Australian economy will officially enter the recession this week, but economists and financial markets hope the subsequent recovery will be sharper than previously expected, despite the bleak global outlook. The Reserve Bank is expected to keep interest rates on hold at 3 per cent tomorrow, extending the pause ordered in May while the 425 basis points already sliced off the cash rate work their way through the financial system. The rates decision will come a day ahead of the Australian economy reaching a technical recession for the first time in nearly two decades as a result of the current global upheaval. Westpac senior economist Andrew Hanlan said the Government's $8.4 billion cash transfer in December, part of its fiscal stimulus package, would have supported national income in the first quarter, and this would continue as the second round came into effect. The deterioration in business investment, highlighted by an 8.9per cent fall in capital expenditure in the March quarter, was probably the major drag on economic growth results. "Conditions in the Australian economy weakened further early in 2009 as business responded to the global recession and declining commodity prices lowered national income," Mr Hanlan said. The Australian dollar has been one of the best performing currencies on the global foreign exchange market. At the weekend it surged offshore to US79.83c ... Westpac chief economist Bill Evans said credit market trading, bond yield curves and commodity prices indicated an expectation that Australia's economic rebound would be sharper than in most major economies. Economists are warming to the prospect that the Australian housing market will be one of the major forces in the expected recovery during 2010. The housing market has proved resilient during the current downturn with demand boosted by the extension of the increased first home owners grant in the federal budget. During April, credit for housing rose 0.7 per cent, well above the expectations of economists, while a study by RP Data-Rismark showed house prices across Australia increased 1 per cent during April and almost 3per cent for the year. The April building approval numbers, published tomorrow, are forecast to show a 1.5 per cent increase, which would complement 3.5 per cent in March. Scott Murdoch | June 01, 2009 Article from: The Australian (edited) Back   Print this article