Access, which is known as Australia's "Treasury-in-exile" for the large number of former Treasury officers it employs, says corporate profits outside the banking sector will halve over the next two years, pushing some firms to the wall. It expects the unemployment rate to hit 7.5 per cent early next year - lower than in previous recessions - with the unemployment queue swelling from its present 500,000 to 850,000. "This is the most likely outcome, but much will depend on our new industrial relations system,'' Access director Chris Richardson said. "Let's hope that it works better than the old one did during the previous recession." The report points to "a clear risk" that its forecasts "are not dire enough". "Our boom of the last four years has been all but undone in the last four months," it says. "That may mean not merely the

recession we forecast, but something bigger and badder.

"Unemployment could go higher than the 7.5 per cent we forecast. And although we already project a halving of corporate profits, it could get even uglier.'' While making no comment about the specific forecast of a recession, Mr Swan said he agreed with the report that the year ahead would be tough and there would be no quick fix. "There's no point gilding the lily in any way," he said. "China and other emerging economies now caught up in this crisis are expected to slow much more sharply than previously anticipated. "We will not hesitate to take further action if necessary to support growth and limit the impact on Australian jobs."

Access says it had thought China's relative strength would buy Australia "12 months of immunity from worldwide

troubles", but China's boom was collapsing quickly. Its economy should now grow by only 6.2 per cent this year - down from the 9.75 per cent predicted by Treasury in November. The report describes the federal budget as "buggered", noting the latest revenue forecasts were made before the latest collapse in commodity prices. "As Access stressed during the good years, the big personal income tax cuts and family benefit increases of recent times were spending a temporary surge in revenues. "With that money now disappearing, Canberra faces ugly policy choices. "The glory days of big budget surpluses are over and the Treasury is now staring down the barrel of deficits as far as the eye can see. Canberra faces difficult policy choices - will the pensioners get the extra money they have been promised, or will we get the education revolution?

"Do we maintain the big increases in middle-class welfare in Family Benefit B, or will there be a national broadband network?'' Access believes share prices have probably stabilised after halving to reflect the probable halving of company profits. It says the next risk to household wealth will be a slide in house prices this year of 5 per cent to 8 per cent. "From here on, top-end prices will be pressured by the collapse in sharemarket wealth; bottom-end prices will be hammered by a sharply rising risk of unemployment; and prices in general will be hurt by the higher returns relative to price now available on the sharemarket." Access expects the Reserve Bank to cut its cash rate to an all-time low of 2.5 per cent this year "in order to take out insurance", allowing the standard variable mortgage rate to fall to an historic low of 5.25 per cent. Fragile commodity prices and a ballooning current account deficit should push the Australian dollar to a long-term low of 56 US cents.

NSW would be the state worst-affected by the recession and was "already drowning, with its economy contracting at

US-style rates". Loading Victoria was on the brink of recession but was "taking the pain early with manufacturing and financial services the centre of its slowdown". It should do relatively better than the resource-rich states of Western Australia and Queensland during 2010-11 as they will

continue to suffer from low commodity prices.

