Recession risks on the rise again for Australia, cautions AMP
Fears about a recession have resurfaced due to cost-of-living pressures, central bank rate hikes and a slowdown in real household spending, according to AMP’s chief economist.
Despite not being as weak as other countries, Australian economic indicators are currently generating some concern, according to head of investment strategy and economics and chief economist at AMP, Dr Shane Oliver.
Australia is already in a “per capita recession” as GDP per person has been falling despite the increase in GDP, he noted.
Oliver said the risk of recession is high based on a number of local and global factors.
Currently the “risk of recession” has been measured at 50 per cent due to interest rates having increased by the mortgage rates “people actually pay.”
Household debt servicing costs are now at a record share of household income, alongside the overvaluation of housing.
Other indicators pointing towards recession include the level of real household spending having experienced a dramatic decline and job vacancies falling which has caused the unemployment rate to increase to 4.1 per cent, he said.
Oliver also predicted, “the boost to Australian economic growth from record population growth looks to slow over the year ahead by at least one percentage point which will more than offset the boost from tax cuts.”
If Australia enters a recession, it is likely Australians will experience increased levels of unemployment, less job security, a lower wage bargaining power, a fall in living standards and a decrease in confidence.
“Recessions eventually also mean lower growth in the cost of living and often lead to lower levels of immigration and less household formation which could take pressure off rents and home prices,” he said.
The RBA and its higher interest rates may have also significantly impacted the potential of a recession.
Oliver said increasing concern has been signalled towards central banks as they have not adjusted interest rates in a way that has effectively impacted the economy.
“The RBA may not have allowed for the “long and variable lags” with which rate hikes impact growth and inflation and so overtightened or left the rates too high,” he said.
“This has likely been made worse by the pause in progress getting inflation down over the last six months because central banks never know when they have raised enough to control inflation they often go too far- resulting in recession.”
Oliver said the RBA should now consider a cut in interest rates as high unemployment and inflation falling below target is now a risk.
Economic indicators in the US are also “flashing red” despite the American economy being stronger than expected.
Distinct warning signs in the US economy implying potential recession include short-term interest rates measuring below long-term interest rates and weakening job data.
Oliver said he advises people including superannuation members to stick to appropriate long-term investment strategies to survive current and future market conditions.
