In the country of Australia suffered its biggest economic contraction since the financial crisis in the third quarter, as torrential rain and falling business investment left the country at risk of slipping into its first recession in a quarter of a century.

The economy shrank by 0.5pc in the three months to September compared with the previous three months, according to the country's statistics bureau.

This was the first economic contraction since the Queensland floods in 2011 and the worst decline since 2008. Economists had expected a shallower drop of 0.1pc.

The fall was driven by a drop in investment and net trade, while the second wettest winter in 100 years weighed on the construction industry, where output fell 3.6pc compared with the previous quarter.

Consumer spending helped to limit the decline, with household expenditure rising by 0.4pc over the quarter. However, economists said the country's high household debt levels would amplify a shock if a downturn hit.

Scott Morrison, Australia's treasurer, described the figures as a "wake-up call" for an economy that has seen  12 consecutive quarters of shrinking private investment.

Mr Morrison said the drop showed that policymakers could not afford to be "complacent", as he signalled that fresh incentives were needed to stimulate investment, including cuts to corporation tax.

"Driving investment is the challenge," he said. "If you compare this [contraction] to 2008, the big difference is business investment."

While most analysts expect Australia to avoid falling into its first recession since 1991 - defined as two consecutive quarters of economic decline - Fathom Consulting said any rebound in growth was likely to be limited.

"With high household debt loads and soft wage growth, consumer spending cannot be relied upon to drive a material pick-up in economic activity," said Kevin Loane, an economist at Fathom.

Mr Morrison will set out his latest economic review later this month.

Ratings agency S&P has signalled that it will strip Australia of its prized AAA credit rating if it continues to deviate from its budget forecasts.

The Reserve Bank of Australia (RBA) held interest rates at 1.5pc this week. The central bank has cut its rates by 300 basis points since the end of 2011 in order to boost growth following the end of a commodity boom.

The recession threat comes after a series of warnings about the country's household debt levels.

The International Monetary Fund said in October that Australia, Canada and Singapore were three countries where private debt has "continued to accumulate at a fast pace".

The RBA's latest financial stability review warned in October that that household debt-to-income ratio was still "drift[ing] up from already high levels, as housing debt has increased and income growth remains low".

While the report noted that households' debt-servicing ability remained "well supported by the very low level of mortgage interest rates", it warned that the share of vulnerable borrowers was rising.

"Many borrowers have little or no buffer, especially the newest borrowers and those considered more at risk of experiencing financial stress, such as borrowers with lower wealth and income or higher leverage," it said.

Most economists expect Australian growth to pick up in the final three months of the year, helped by stronger growth in exports and mining output.