AUSTRALIA risks sinking into recession early next year after a “very disturbing” slide in expectation for economic growth, according to a report from Westpac.

Interest rates are tipped to fall to historic lows after an index measuring future economic activity showed the biggest monthly drop in more than 20 years.

The Westpac-Melbourne Institute leading index, which measures the likely pace of economic activity three to nine months in the future, shrank to 1.1 per cent in September. The drop from August’s 3.5 per cent pace was the biggest monthly fall since the mid-1980s.

Other data out yesterday showed that Australian vehicle sales had suffered the biggest annual slump in seven years. Yesterdays data showed vehicle sales in the year to October slumped by 10.6 per cent, the biggest seasonally adjusted annual slide since September 2001.

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