Australia faces first recession for two decades

The Australian economy shrank by 0.5 per cent during the final quarter of last year, the government said yesterday, leaving the country on the brink of its first recession for 20 years.

The data took economists by surprise and left the Prime Minister, Kevin Rudd, facing criticism. Mr Rudd has repeatedly insisted that Australia is well placed to weather the global economic storm, but conceded yesterday that a recession is likely. Australia "cannot continue to swim against the global economic tide", Mr Rudd warned.

Australia has already announced spending packages aimed at countering the slowdown, but yesterday's data revealed drops in activity across the country's economy, with manufacturing, trade and the services sector all down.

Australia has also been hit by the collapse in demand for commodities, in which it is rich.

The Australian stock market fell to a five-year low yesterday, while the value of the Australian dollar also fell back by more than 1 per cent.