Will there be a recession in Australia in 2023?

There has been some speculation that there will be a recession in Australia. Canstar asked three experts for their thoughts. Here’s what they had to say.

Craig James

Is recession a possibility over the next year? Yes certainly, the sharp rise in interest rates means that the chances of a recession have risen. Perhaps in a one-in-three chance. But we can never be too negative about our economy – its resilience has constantly surprised.

It’s important to know that the economy has only gone backwards on half a dozen occasions (quarters, or three-month periods) over the past 32 years. And three of those declines happened in the COVID/post-COVID period. Also, notably, climate/weather events such as drought, floods or bushfires have also been key in driving the economy backwards for a short period.

While the upward climb of interest rates increases the prospect of recession, rates are rising at a time when the jobless rate is just marginally up from 50-year lows. Jobs are still in high demand, causing a big inflow of migrants. And the lift in population growth is providing valuable support to the economy.

If a recession (technically defined as two consecutive quarters of contraction) did eventuate, it is likely to be a quite shallow and short-lasting event. Fundamentals such as the budget and trade surpluses and structurally low jobless rate will prevent the ‘old style’ recessions of the 1970s and 1980s from appearing. That is, periods when the jobless rate rose from 5%-6% to 10%-11% in just over a year.

Of course, it all boils down to inflation – more specifically, getting the annual rate of consumer prices below 3%. The quicker that the inflation dragon can be contained, the quicker that interest rates can come down to less restrictive levels.

Craig James is Chief Economist at CommSec. Craig is a regular on TV and radio and also does newspaper interviews and writes regular commentaries.

Evan Lucas

It’s clear from a per capita basis that a recession – a technical recession that is – is very likely. Per capita is taking out net migration and the reason we look at this is that if you look on a like-for-like basis, quarter-on-quarter consumption now is in recession, private expenditure is contracting and net exports are bordering on also being contractionary. We’ve locked that in for the first quarter of this calendar year and all signs in the second quarter of this calendar year are slower than the first so yes, I do believe a recession is going to happen on a technical level.

On a headline figure, we may avoid a recession but that does not mean it’s not going to feel like one. People’s living standards are falling and sustainable living standards are already being impinged. People’s ability to do what they want when they want has already changed their spending habits and their overall economic wellbeing is lower. These are the traits of a recession and even if we don’t register a recession, we are probably in a recessionary environment and that is why things will be difficult in the coming months to a year.

Evan Lucas is Head of Strategy at InvestSMART and author of Mind over Money.  He is a regular commentator on ABC television and radio news, TODAY and SKY News.

Diana Mousina

The RBA’s 4% increase in the cash rate since May last year means it is becoming much harder for the economy to remain on an “even keel” as the RBA and most are forecasting and runs the real risk of tipping the economy into a recession, which we assign a 50% risk to in the next 12 months.

There are already increasing signs that the economy is weakening – retail sales have slowed, the unemployment rate is rising, building construction is collapsing, and this is all occurring at a time when the inflation indicators are pointing down.

We don’t think it’s necessary to induce a recession in Australia to see the inflation outcomes the RBA would like. But it looks like the RBA has grown more impatient in waiting for inflation to slow and has given up on the argument about the lagged impact of interest rate hikes (which was an argument used to keep the cash rate steady at the April meeting).

It also looks like the RBA is increasingly of the view that it needs to bring the cash rate more in line with its global peers (after it previously appeared like the RBA was more comfortable with interest rates being lower in Australia compared to its global peers).

Diana Mousina is Deputy Chief Economist at AMP Capital. Diana makes regular appearances on mainstream Australian television networks and radio stations.

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