KEY economic indicators are showing an alarming slide in Victoria's economic activity and weakness throughout the nation's south-east, intensifying speculation of another interest rate cut next week.
Business investment in Victoria slumped 14 per cent in the March quarter from a year earlier, Bureau of Statistics figures reveal.
This wiped away more than 2 per cent of the state's output, as investment sank to 2008 levels.
The high dollar and high interest rates have flattened Victoria's economy, along with most of the south-east and even parts of Queensland and Western Australia remote from mining.
In the six months to March, investment boomed at an annualised rate of 40 per cent in mining, but slumped 10 per cent in service industries and 18 per cent in manufacturing.
A sense of crisis is growing in the global economy. China's index of manufacturing activity slumped 5.5 per cent in May. India reported that its gross domestic product grew by only 5.3 per cent in the year to March, its slowest growth for nine years.
China and India have generated most of the world's growth since 2008, including Australia's export boom. As their demand falls, Australia's trade has sunk into deficit. Commodity prices have slumped 10 per cent, falling 1.8 per cent in May alone.
Futures markets now see interest rates going into free-fall for the rest of the year. They have priced in the equivalent of six more interest rate cuts by December, the first coming when the Reserve Bank board meets on Tuesday.
Economists are divided. The ANZ Bank said the non-mining economy was underperforming and inflation presented no threat. But Merrill Lynch chief economist Saul Eslake said a rate cut now could be wasted, with the federal government handing out $2.4 billion to households through the Schoolkids Bonus and compensation for the carbon tax.
Europe, meanwhile, is sliding deeper into crisis, with no sign of agreement on how to reverse it. Spain's central bank revealed that nervous depositors took ?97 billion ($A124 billion) out of Spanish banks in the March quarter, even before the turbulence of May.
The bureau's figures show Victoria has been flattened by the high dollar and high interest rates.
This week's data shows that:
. Home building approvals slumped 23 per cent in the year to April. Housing, one of the state's great strengths during the global financial crisis, is now in reverse.
. Total construction activity slumped 5 per cent in the March quarter, with building activity shrinking faster than engineering work grew.
? Retail turnover is now flat as shops rely on discounts to attract sales. In the past year, retail sales have simply kept pace with inflation.
. Unemployment on the smoothed trend figures has risen from 4.8 per cent to 5.5 per cent of the workforce, the highest rate outside Tasmania.
Yesterday home prices were added to the list. The RPData-Rismark index reported that Melbourne prices tumbled 2.7 per cent in May alone, and by 8.4 per cent in the past year, to a median price of $490,000.
Westpac economists said the slide in prices was even steeper after seasonal adjustment. In the six months to May, they estimate, house prices fell at annualised rate of 16 per cent, and units and apartments at over 10 per cent.
Westpac senior economist Matthew Hassan said falling prices and rising auction clearance rates suggested part of the slide in May was due to sellers lowering their prices to ''meet the market''.
Manufacturing is also in trouble. The Australian Industry Group's manufacturing index slumped 1.5 points in May to 42.4, its second lowest since 2009. The only growth was in wages, input costs and unsold stockpiles.
