Finance lecturer Mark Bouris has warned Australia is reeling from a recession as interest rates remain high, noting we are already in one on a “per capita” basis. The Reserve Bank of Australia (RBA) kept the cash rate at a 12-year high of 4.35 percent after its August meeting.
The central bank scaled back its inflation forecasts and now expects inflation to return to its 2 to 3 percent target “by the end of 2025 and closer to mid-2026”. This is a slightly slower return on target than predicted.
Bouris said he was “very concerned” about the RBA taking the view that Australians could “stick around with these very high interest rates, given where a lot of people were borrowing a few years ago, at least until 2026”.
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“We are talking about the rest of ’24, all of ’25 and part of 2026. To me, that seems unreasonable. It seems that they are creating a chance for us to fall,” said Bouris.
The founder of Yellow Brick Road said he believed that if interest rates stayed at their high levels until 2026 then Australia was in “big trouble”.
“I’m talking about the big R, I’m talking about the recession,” he said.
“But more importantly, I’m talking about a recession when it comes to workers. It’s a recession caused by unemployment.
“That’s a higher unemployment rate than it is now, which is 4 per cent higher. That worries me, and it should worry every Australian.”
The unemployment rate rose to 4.1 percent in June, from 4 percent the previous month, despite the creation of about 50,000 jobs.
RBA Governor Michele Bullock said she and the board “do not believe” Australia is headed for recession.
“We still believe that we are on that narrow path. Having said that, we are based on the data and there are many things as we said in the monetary policy statement that could cause the economy to slow down faster and inflation to go down faster than we think. we expected,” Bullock said.
“We need to pay attention to those, and if they happen, it will be on the list of interest reductions.”
He said that the board has decided that the interest rate will be reduced in 2024.
Australia in the per capita recession
Bouris said Australia was “definitely” already in recession on a per capita basis. This is a measure of economic activity per person.
The latest national reports showed GDP per capita fell by 0.4 percent in the first three months of 2024 and 1.3 percent last year. This was the fifth consecutive quarterly decline and the largest annual decline since the recession of the 1990s.
GDP rose 0.1 percent in the March quarter, with an annual increase of just 1.1 percent. Apart from this epidemic, this is the weakest result in three decades.
A recession is defined as two consecutive episodes of negative growth.
What does the recession mean for Australia?
AMP chief economist Shane Oliver says the risk of a recession in Australia is 50 per cent.
“Recessions often lead to high unemployment – in the early 1980s and 1990s recessions had a 5 percent increase, less job security, a sliding power of lower wages, lower living standards and lower confidence,” Oliver said.
“Ultimately a recession also means slower growth in the cost of living and often leads to lower levels of immigration and fewer households which can reduce pressure on rents and house prices.”
Australia’s slump also tends to be associated with a “bear market in shares”, Oliver said, meaning that 20 per cent or more falls as they cut profits.
Oliver said the RBA should now “consider a reduction in interest rates” as there is now a high risk of unemployment and inflation falling below target.
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