Australia economy on brink of recession

Australia's economy unexpectedly shrank for the first time in eight years last quarter as chastened consumers chose to save rather than spend, reviving pressure for yet more monetary and fiscal stimulus.

The Australian dollar slid while bill futures surged as investors wagered the Reserve Bank of Australia (RBA) might come to regret its decision this week not to cut rates and so now would have to do so in April.

"A massively, massively weak number and this is the necessary condition for the first leg of a recession," said Joshua Williamson, a senior strategist at TD Securities.

The common definition of recession is two successive quarters of contraction in gross domestic product and the last time Australia suffered that was in 1991.

"Global weakness has now extended well and truly to Australia and should add to expectations for more aggressive rate easings in coming months, especially given the RBA's decision yesterday to keep rates on hold," said Williamson.

Investors rushed to price back in the prospect of a 50 basis point cut in the 3.25 per cent cash rate when the RBA next meets on April 7, and suggested it could approach 2.0 per cent by mid-year.