Although prior to the 2020 recession Australia had gone 30 years without experiencing a recession, the possibility it could face 2 recessions in 3 years is becoming increasingly possible.
Although prior to the 2020 recession Australia had gone 30 years without experiencing a recession, the possibility it could face 2 recessions in 3 years is becoming increasingly possible.
Recent reports in the Australian media have highlighted predictions of a potential recession in Australia, with the AFR reporting that “If a recession does occur, it is most likely sometime over the next four quarters,” with estimations pointing toward a 40% to 70% chance of a recession by September 2023. AMP recently issued a statement which identified a 'consumer recession' as an 'inevitable' .
One key factor to monitor is the Australian economy's efforts to reduce inflation and reach its targeted range of 2%-3%. These measures may include increasing interest rates, which are currently at 3.85%, to a projected 4.8%. Such an increase could potentially lead to a further rise in unemployment of over 25%.
Regarding the fiscal policies of the government, opinions vary on whether the Labor budget will have a stimulating effect on the economy, potentially prompting the Reserve Bank of Australia (RBA) to consider raising interest rates. Westpac chief economist Bill Evans has maintained the view that interest rates will not begin to decrease until February 2024. However, the treasury's decision to inject significant funds, including $12 billion next year, could potentially delay any prospective decreases in interest rates in 2024.
It is important to note that the situation in the United States differs from that in Australia. Market strategists in the US suggest that short-term interest rates are likely to remain unchanged until the end of the year, with a 75% chance of the Federal Reserve cutting rates by September, as per the CME FedWatch Tool.
Forbes Advisor (2023) has provided an interesting graph demonstrating the in sync interest rate rises from countries around the world.
The prospect of a recession can be daunting and worrying, with talk of spikes in unemployment and rate hikes painting pictures of a frightening future for the Australian economy. It is important to note however, as Jason Murphy reinforces, that "If unemployment doesn’t surge, and if we recover quickly afterward, Australia could get back to the sweet spot: low unemployment, strong growth, and inflation under control." The possibility that Australia enters a 'technical recession' could mean that the future of the Australian economy is slightly less daunting.
If you’re interested to know more about how this may impact your superannuation please reach out to shanej@trendline.com.au, or give us a call at 4285 6133.
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