Stocks in Australia Fall, Budget Worries

123jump.com Staff
26 Nov, 2008
New York City

Australian stocks fell on the rising worries that government budget may slip in negative for the first time in seven years. Separately, OECD lowered its growth estimate for the country to 1.7% in 2009 and revised higher the unemployment projections. Rio Tinto plunged 37%.

[R]3:00AM New York, 7:00PM Sydney – Stocks in Australia fell on the worries of global economic weakness, budget deficit, weak currency and rising unemployment.[/R]

Stocks in Australia dropped after the Organization for Economic Cooperation and Development reported that the economic growth is estimated to decline to 1.7% in 2009 from 2.5% in 2008.

Commodity stocks were mixed after gold prices increased and other metal prices dropped.

In Sydney trading ASX 200 index stocks fell 2.3% or 83.4 to 3,540.00.

Of the ASX 200 index stocks 50 increased, 141 declined, and 9 were unchanged. Macquarie DDR led advancers in the index shares with a rise of 19.3% followed by Babcock & Brown rising 16.7%.

Australian Economy Forecasted to Slow

The Organization for Economic Cooperation and Development reported yesterday it forecasts that Australian gross domestic product growth will slow from 2.5% in 2008 to 1.7% in 2009.

However economic activity is expected to rebound to 2.7% in 2010.

OECD notes that despite the weakened international environment, “the impact of the financial crisis and the fall in the terms of trade should be relatively contained”.

Unemployment is forecasted to soar 4.3%, 5.3% and 6% in 2008, 2009 and 2010 respectively. And inflation is projected to ease to 3.3% next year and 2.4% in 2010.

The OECD statement noted, “The recent budget measures, made possible by the significant fiscal leeway built in the previous years, will also support activity, although their effectiveness might be limited if confidence is not restored. It is important for the ongoing reform of industrial relations to preserve labour-market flexibility.”

Australia Budget Might Slip into Deficit

The financial newspaper Australian reported today that Prime Minister Kevin Rudd told Parliament in a statement on his G20 talks that the country''s budget might slight into a temporary deficit for the first time since 2001 if conditions on the global financial markets worsen further.

“If Australian economic growth slows further because of a further deepening of the global financial crisis, then it follows that Australian revenues will reduce further. Under those circumstances, it would be responsible to draw further from the surplus and if necessary to use a temporary deficit to begin investing in future infrastructure needs including hospitals, schools, TAFEs, universities, ports, roads, urban rail and high speed broadband,” said Rudd.

Gainers & Losers

Macquarie DDR led advancers in the ASX 200 index shares with a rise of 19.3% followed by increases in Babcock & Brown of 16.7%, in Panaust Ltd. of 14.3%, in Iluka Resources of 10.5%, and Babcock & Brown of 10%.

Babcock & Brown and other financial stocks edged up after the U.S. Federal Reserve committed $800 billion to unfreeze the debt market.

Iluka Resources increased as gold prices soared $5.9 to $820 per ounce.

NRW Holdings Ltd. led decliners in the ASX 200 index shares with a fall of 37.1% followed by losses in Rio Tinto of 34.3%, in Connecteast Group of 28.2%, in Ausenco Ltd. of 27.1%, and HFA Holdings of 21.1%.

Rio Tinto declined after BHP Billiton dropped its bid for the company, citing that completing the deal was no longer in the interests of the shareholders.

Other commodity stocks dropped as crude oil prices slid $2 to $51.60 per barrel. Fortescue Metals shed 16.1%, Platinum Australia lost 10.7%, Aquarius Platinum dropped 9.8% and Panoramic Resources plummeted 9.7%.