Gillard talks down depression fears

Australians have seen the biggest drop in wealth in at least 20 years, but Acting
Prime Minister Julia Gillard says the economy is not on the brink of a depression.
New government data released shows household wealth fell just over 16 per cent in
the past year - the biggest decline since records were first maintained in 1988.
"The average Australian has lost around $10,000 over the past year in response to
the US banking crisis," according to Commonwealth Securities chief economist Craig
James.
But Ms Gillard has been quick to douse fears that the country is heading for a
financial crisis, even though this could be the fate of the US if Congress fails to
pass a multi-billion dollar package to save the US banking system.
US President George W Bush warned Congress that failure to pass the government
$US700 billion package could see America slip into "financial panic".
Congress is still trying to cobble together a deal.
ANZ Bank chief executive Mike Smith warned the US could go into depression without
the package.
Ms Gillard said Australia was in different circumstances.
"What we know is that here at home in Australia we can be reassured we've got a well
regulated financial market and we're in a very different circumstance to what has
happened in the US," Ms Gillard told the Fairfax Radio Network.
"We don't have the same exposure to sub-prime loans, we don't have the same
regulatory issues.
"So while obviously we're in troubled times, and globally there is so much
uncertainty abroad, here we've got a well regulated financial sector and an economy
that's showing some resilience in the face of this trouble."
Still, Australia's closest neighbour, New Zealand, officially sank into recession in
the first six months of this year, according to data released, with the economy
undermined by international factors and drought.
Figures show New Zealand's economy contracted by 0.2 per cent in the June quarter,
the second successive quarter of negative growth, and satisfying the definition of a
technical recession.
However, financial markets are confident the Reserve Bank of Australia (RBA) will be
quick to prevent the local economy slowing too rapidly by cutting its key cash rate
again next month.
The money market is now pricing in around an 80 per cent chance of a half a
percentage point rate cut when the central bank's board next meets on October 7.
"The Reserve Bank decided to cut rates in September partly because it knew that the
sharp fall in wealth would have a long-lasting impact on spending," CommSec's Mr
James said.
"Wealth has fallen again in the latest quarter, opening the door for more stimulus
by the Reserve Bank."
Economists will get a spray of new economic indicators to pore over next week to
gauge the chance of a rate cut.
Figures for credit, retail spending, building approvals and international trade are
due in a busier data calendar than of late.
But economists are still complaining about the Australian Bureau of Statistic's
decision to slash its retail survey by two-thirds as part of the government's budget
cuts.
"The retail sales survey redesign has seriously degraded the monthly measures'
usefulness as a guide to consumer spending," Westpac senior economist Matthew Hassan
said.
"The timing of the changes could not be worse ... (it) effectively leaves the (RBA)
flying blind."