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Signs of economy stabilising, but recession f -

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PETER CAVE: There are tentative signs today the Australian economy is slowly stabilising in the
face of a recession.

A closely watched index from Westpac and the Melbourne Institute posted a slight improvement in
March but that doesn't of course mean that a deep recession can definitely be avoided.

I'm joined in the studio now by our business editor Peter Ryan.

What can you tell us about this index? What does it look at and how has it improved?

PETER RYAN: Well Peter, this is Westpac's leading index and it looks at the pace of economic
activity over the next three to nine months. The index delves into the share market, the money
supply, dwelling approvals, US production and overtime by workers - and it's also been looking at
the so called "green shoots" of economic recovery we've been hearing a lot about.

But here's the reality check - the index was minus 5 per cent in March and annualised growth was
just 0.7 of 1 per cent

That's well below long term trends, and the main improvements have come from the recent share
market rally, which appears to be over, and a surge in demand for housing.

Westpac senior economist Matthew Hassan says yes, this is a stabilisation but it is coming off a
very low base.

And he warns this is just a slowing in the economic contraction and there's no sign of the
recession easing.

MATTHEW HASSAN: These sorts of levels are what you tend to see during recessions in the early 90s
and the early 80s and so on and even though we've seen an improvement, it's still a long way to go
before we get to levels that are consistent with positive growth.

So for example, if we see similar gains in the index it would still take three or four months
before we get back to an overall level that points to positive growth and in turn, given the
leading nature of the index, that would imply a return to growth in the economy only by December
quarter at the very earliest.

PETER CAVE: Westpac senior economist Matthew Hassan. Peter, it is not the only news out today. Has
it all been good?

PETER RYAN: Well, Peter we have just had figures out from the Bureau of Statistics (ABS) and
skilled vacancies fell an average 7 per cent in May.

The biggest fall has been in Western Australia - down 11.2 per cent because of the slowdown in
mining. And when you look at the annualised figures, skilled vacancies are down more than 61 per
cent on this time last year.

We've also seen construction work fall 3.7 per cent on the last quarter according to the ABS and
all this goes to the case that unemployment will rise steadily, perhaps as high as 8.5 per cent
over the next 15 or 16 months.

PETER CAVE: The big banks have been weathering the downturn relatively easily according to some
figures out today. The ANZ showing it can raise fresh capital despite the tighter credit

PETER RYAN: That's right. The ANZ says it's raising $2.5-billion through a share sale to strength
its balance sheet and this is to partly fund a possible expansion through the purchase of assets in
Asia, which has been put on the market by the Royal Bank of Scotland (RBS).

RBS has been hit quite hard by the banking crisis and wants to return to its home markets and at
the same time, the ANZ has been very public about wanting to expand in Asia where RBS operates in
36 countries.

ANZ is selling these shares at a discount of 7.5 per cent at $14.40 each.

But this is a sign of strength and confidence and that ANZ is able to raise money given the
difficult global conditions, and by the way, it recently posted a 43 per cent fall in half year
cash profit but unlike other banks around the world it's still making a lot of money.

PETER CAVE: And that is despite rising debts?

PETER RYAN: That is right. The ANZ has provided new data that there is a lot of pressure on
businesses of all sizes and the ANZ says bad debt charges might be 20 per cent higher in the second
half of this year.

Bad debts in the first half totalled $1.4-billion and other banks have similar exposure so it seems
the outlook is becoming worse as the stress on the commercial sector and small to medium businesses
becomes greater, particularly as we see unemployment rise.

PETER CAVE: Peter, there's been some bad news today for the Queensland bank Suncorp Metway?

PETER RYAN: Suncorp says it's made a loss on bad assets of $136-million in the March quarter and
its total bad assets are now at $1.2-billion.

It says that its bottom line been hit by falling property values and bad debts.

But it says that its capital position has improved, with its capital adequacy ratio rising above
what's required by the regulator APRA (Australian Prudential Regulation Authority).

It also says it is now considering creating a listed holding company to own its banking, general
insurance and wealth management businesses.

PETER CAVE: Our business editor Peter Ryan, live in the studio today.