Al-anwar Newspaper English news in Australia
Australia could be plunged into severe financial stress and see unemployment rates rise if the country plunges into a recession, according to lead economists.
The Reserve Bank Australia (RBA) increased interest rates on Tuesday for the sixth successive month, hiking the cash rate by 25 basis points to 2.60 per cent.
The bump in interest rates will see repayments on a $500,000 mortgage increase by$76.45 a month. A $1 million mortgage will cost an extra $152.90 a month.
But the RBA is also dealing with a global economy already experiencing shockwaves.
News Corp spoke to chief economists from AMP Shane Oliver and Craig James from CommSec about what a recession would mean for Australia and what to expect.
WHAT IS A RECESSION?
A recession is generally when a country’s economy declines, according to the RBA website.
Economists can’t label it a recession if the Australian stock market has one bad day – you need two successive quarters where Australia’s gross domestic product (GDP) has fallen.
IS THERE A CHANCE AUSTRALIA COULD GO INTO A RECESSION?
Dr Oliver warns a recession is “very likely” if the Reserve Bank continues accelerating rate hikes in its mission to tame inflation.
“Historically, interest rate hikes in the US often lead to recessions … There is certainly a risk and that has gone up,” he said.
“So it’s not just us raising rates, other countries are too and you combine that with the energy crisis, it sort of adds to the risk of recession.”
However, he said avoiding a recession will largely depend on how “aggressive” the RBA will get in raising interest rates.
“If they can call it fairly soon, then we might be able to avoid it,” Dr Oliver said.
“But if we keep raising rates at this rate then the danger is we’ll end up over tightening and we’ll have a recession.”
While CommSec does not expect a recession in Australia, Mr James said there was a chance of it occurring.
“Again because rates are rising and there is the risk that rates may rise too high, too quickly,” he said.
“At the outset it’s important to stress that there is a substantially higher risk of recession outside Australia.
“The last recession apart from Covid was over 30 years ago — other countries have gone into recession over time but not Australia.”
WHAT WOULD BE THE MAIN TRIGGERS FOR A GLOBAL RECESSION?
The cash rate target has risen 2.25 percentage points in the last five months, and Dr Oliver said interest rate hikes are one of the main triggers which will lead to a “significant tightening in financial conditions” and subsequent recession.
