Australia’s economy is in its first recession since 1991, central bank Governor Glenn Stevens said today, adding he is confident that stimulus measures, a strong banking system and a pickup in China will drive a rebound. “I think the reasonable person, looking at all the information available now, would come to the conclusion that the Australian economy, too, is in recession,” Stevens said in Adelaide. Policy makers have undertaken a “rapid deployment of both fiscal and monetary measures, to support demand.” Stevens’ comments echo those of Prime Minister Kevin Rudd, who said yesterday that a recession is inevitable amid slumping global demand for exports of the nation’s natural resources. Rudd today promised to provide economic stimulus in his May 12 budget in addition to the A$90 billion ($63 billion) in grants, spending and bond-market assistance announced since October. The boost from government spending and the central bank’s record 4.25 percentage points in interest-rate reductions since early September “will still be coming through for some time yet,” Stevens said. The central bank most recently pared the benchmark rate to a 49-year low of 3 percent on April 7. “There remain good grounds to think that we will continue to weather the storm better than most,” the governor said in his speech entitled “The Road to Recovery.” The Australian dollar traded to 70.13 U.S. cents at 2:35 p.m. in Sydney from 70.19 cents just before the speech was released. The benchmark S&P/ASX 200 index declined 2.1 percent. The two-year government bond yield fell 1 basis point, or 0.01 percentage point, to 3.18 percent. Positive Outlook “Glenn Stevens is no doom and gloom merchant,” said Craig James, a senior economist at Commonwealth Bank of Australia. “While the global economy may be a gloomy place, he sees plenty of reasons to be positive. His optimism on the future certainly doesn’t appear to be laying the groundwork for future rate cuts.” Stevens also said the global economic situation isn’t as “dire” as it was a few months ago. “The clearest signs of a turning point in economic activity appear to be accumulating in China, though not exclusively there,” the governor said. U.S. Federal Reserve Vice Chairman Donald Kohn said late yesterday that the U.S. economy may stabilize in the second half and begin a slow rebound after a strengthening of “fragile” financial markets Budget Stimulus Rudd told reporters in Perth today Australia’s government will use the May budget to “continue to provide economic stimulus because unemployment will go up and because of the global recession.” Treasurer Wayne Swan has said the budget will be in deficit for the first time in seven years. The unemployment rate rose by the most in 18 years in March, climbing to 5.7 percent from 5.2 percent in February. Miners Rio Tinto Group, BHP Billiton Ltd. and Iluka Resources Ltd. are among companies firing workers as the global recession saps demand for raw materials. Policy makers cut borrowing costs two weeks ago because rising unemployment and weaker-than-expected domestic demand increases the likelihood inflation will slow, according to minutes of the central bank’s April 7 meeting released today. Investors are pricing in a 65 percent chance the will lower the overnight cash rate target by another quarter point on May 5, according to a Credit Suisse Group index based on swaps trading today. “The Australian economy has been contracting, though on the best information we have, not at the pace seen in a number of other countries,” Stevens said. Global Comparisons Australia’s gross domestic product declined 0.5 percent in Australia from the previous three months, a report showed on March 4. By contrast, the U.S. and U.K. economies both shrank 1.6 percent. Japan contracted 3.2 percent. In Australia, “public finances remain in very sound shape, with modest debt levels and a medium-term path for the budget back towards balance,” Stevens said. “Without the massive obligations arising from bank rescues that will inevitably narrow the options available to governments in other countries, the financial regulatory system is strong and tested.” Among recent evidence that lower borrowing costs and government handouts are reviving the economy, home-loan approvals rose for a fifth month in February and consumer confidence in April climbed by the most since August. Business sentiment gained in March. Exit Strategies Still, the economy remains reliant on a rebound in global economic growth, Stevens said. Governments, particularly in the U.S., the U.K. and Europe, need to repair their financial systems and provide macroeconomic stimulus, he noted. Globally, policy makers will also need “exit strategies” to restore government finances once there is evidence of a pickup in activity, the governor said. “For those countries whose governments ended up owning part or all of banks, there will need to be a plan to divest that holding when conditions improve,” Stevens said. As well, “at some point, it will be prudent to start weaning banks, or more to the point investors, off those guarantees” provided by governments on bank debt.

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