Australia’s AiG Performance of Manufacturing Index fell to 31.7 in February, suggesting activity in the sector is shrinking at the fastest pace since recordkeeping began in 1992. The reading suggests that companies will continue to cut back production and shed jobs as global demand dwindles, trimming disposable incomes to discourage spending and weigh on overall economic growth. Indeed, the trade balance has narrowed sharply on falling exports of coal and iron ore while the unemployment rate jumped to 4.8% in January to register the largest monthly increase since February 2001. The barrage of dour data is making it increasingly likely that Australia will follow other top economies into recession in 2009. For their part, the Reserve Bank of Australia is likely to cut interest rates again later this week as policymakers struggle to keep the larger antipodean economy afloat. Overnight index swaps see the markets pricing in a 25 basis point reduction to bring borrowing costs to 3.00%.
