A top economist has warned that countries such as Australia face the risk of a recession in 2024 due to brutal interest rate hikes.
According to News Corp Australia, Diana Mousina, deputy chief economist of AMP, said that the risk of a recession in Australia is 40% after the Reserve Bank of Australia (RBA) has carried out the most drastic round of interest rate hikes.
(Image source: News)
Over the past 19 months, the RBA has raised the cash rate 13 times, from a record low of 0.10% to 4.35%, a record pace.
Under the pressure of soaring inflation, the RBA has been forced to raise interest rates as a way to raise costs for homeowners and businesses in an attempt to suppress price increases.
"Typically, whenever there is a big increase in interest rates, as we are experiencing right now, there is some kind of day of reckoning, or some kind of crisis that ends with that," Mousina said in a recent AMP webinar. ”
(Image source: News)
She pointed to the closure of U.S. banks in March and historical data showing that Fed tightening usually leads to a crisis. "Last March, we had a banking crisis in the United States, and you might say, this is the crisis that this tightening cycle has caused, but I have a hard time believing that this is the end of it. ”
"I think we're going to see other types of ...... in 2024 Whether it's a mini-crisis or a more severe recession. In the face of the economic headwinds coming in the new year, Mousina said one could expect a slowdown in global growth or a recession in the coming months.
Mousina spoke about the parallels between today and the recession of the early 90s of the last century. "The RBA kept raising the cash rate, everything looked fine, the unemployment rate came down dramatically, and then when we went into a recession, the unemployment rate started to rise very, very quickly again, and the RBA quickly lowered interest rates. ”
(Image source: News)
"When the situation is not rosy, things may look okay, which is why financial markets are still pricing in a considerable possibility of a recession. "Australia has recently experienced a historically low unemployment rate, which remained at 3.8% in November 2023.
After the unemployment rate caused by the Covid-19 pandemic soared to 7.5% in 2020, it fell to 3.4% in 2022. Although many Australians are employed, the high cost of living due to inflation means that many are struggling.
According to the Australian Bureau of Statistics, December 2022 saw the highest inflation rate at 7.8 per cent, with the latest data showing that costs remain high at 5.4 per cent. Economists believe that inflation between 2% and 3% is the ideal level for price growth.