What happens during a recession?
The last officially declared recession in Australia was in 1991-1992.
At that time, wages and incomes fell sharply, and the unemployment rate exceeded 10%.
Now, we are in the same situation.
Shane Oliver, chief economist at AMP Capital, said
The risk of a recession in Australia in the coming year is 40%.
The impact of the recession in Australia will be felt gradually
RBA raises interest rate to 4.35% from 0.1%
The Reserve Bank cash rate is at a 12-year high of 4.35%.
Since interest rates began to rise, Australia, is facing huge risks!
On a per capita basis, GDP growth over the past four quarters has been -0.3%, -0.5%, -0.2% and 0.0%, respectively, taking into account population growth.
With the exception of the pandemic, this is one of the weakest periods of GDP per capita since the recession of the early 90s of the 20th century.
Take the entire calendar year as an example. In 2023, Australia's production increased by only 2.0% compared to 2022.
It's the worst year since the 2020 lockdown
50% of Australians believe "society has collapsed" and 48% believe "the country is in decline".
This would push us to the brink of recession.
The main risk to the Australian economy is a recession due to falling consumer spending.
The latest national accounts show that Australia's per capita economy has shrunk in the last three months
Economic activity will slow, corporate profits will contract, and unemployment will rise.
The increase in mortgage payments has resulted in significantly less spending on groceries, home repairs, gas, eating out, etc.
Australia's income fell by the most in the developed world.
Australians don't dare to spend money anymore
Australians reduced spending on clothing, footwear, household goods and other areas in March, and the consumption data was well below market expectations.
The latest data from the Bureau of Statistics showed that retail spending fell by 0.4% in March, compared with expectations of a 0.2% increase.
Australian consumers spent $151 million less in March than the previous month
With the exception of food retail, which grew by 0.9%, turnover declined in all sectors.
Among them, the retail trade of clothing, footwear and personal accessories saw the largest decline, with a decline of 4.3%.
Retail spending fell by 1.1 per cent in NSW and 0.8 per cent in Victoria, with the two states seeing the biggest declines
Australia's higher cash rate has not stopped soaring house prices, but it has left more and more businesses in trouble because of high levels of debt.
Credit reporting agency CreditorWatch released a report on April 17
Thousands of companies entering custody in the first quarter have reached record highs, 22.1% higher than a year ago.
Business-to-business payment defaults continue to rise, and more and more companies are defaulting on their debts.
High interest rates will not only lead to worsening housing affordability, but will also hurt the economy.
In addition, there are many businesses that owe tax to the Inland Revenue Department, with nearly 24 per cent of those in excess of $100,000 in tax owed to construction companies, and 12.5 per cent in the services sector and the scientific and technical services sector.
Sydney is one of the cities with the most overdue corporate debt
The Merrylands-Guildford region has the highest overdue rate at 7.8%
It was followed by the Bringelly-Green Valley region at 7.75%.
Many small businesses are struggling.
Of particular concern is the persistently high level of defaults on commercial payments
Interest rates remain high, and the inability to pay for goods in time will intensify.
At this time, the Australian Taxation Office (ATO) is stepping up debt collection from companies with more than $100,000 in tax arrears. More and more businesses are unable to pay their suppliers in a timely manner.
Australia's economic growth has fallen to its lowest level in nearly 30 years.
The unemployment rate will increase from about 3.7% to 4.5%.
The OECD expects Australia's real GDP growth to slow to 1.5% in 2024.
At the same time, the unemployment rate is expected to rise to 4.3% from the current 3.8%
The economy is made up of spending by the government, businesses, and households. Household spending is the largest part. If it collapses, a recession can occur.
Insufficient spending can lead to a decline in revenue, a cessation of hiring, or even layoffs. Unemployment has risen, leading households to be more cautious.
It's a pretty vicious circle
But if inflation is not yet under control, it is unrealistic to expect interest rate cuts.
If high inflation is persistent, even permanent, then the RBA's task becomes more daunting and the risk of a recession rises.
Recessions are often accompanied by a rise in the unemployment rate, which takes a long time to stabilize. A large-scale, prolonged recession is not conducive to people's well-being:
Businesses are closing, people are unemployed, homes are lost, mental health is impaired, families are broken.
Inflation expectations are worrisome, and the risk of a recession rises.
A severe and long-lasting recession is likely.
That is, after the price of basic goods and services rises, wages increase but labor productivity does not
Ultimately, Australia may become an uncompetitive economy in a globalised market environment.
If this happens, there will be a severe recession in Australia, which could last for years.
The decline in per capita output is the root cause of the financial pressure felt by consumers and consumer confidence levels remaining near record lows.
The unemployment rate has risen from a low of 3.4% more than a year ago to 4.1% today and will not be long before it reaches 4.5%. %, there is a risk of rising to 5%.
To put it simply, the RBA made a mistake in its 2023 rate hike cycle
If interest rates stay at this restrictive level for longer, the already weak economy will fall into a deeper recession.
Will Australia fall into recession?
There is a 40% probability that Australia could be heading for a recession.
But it does highlight that the risk of a "significant" recession is real.
Amid US-China tensions, Australia will increase defense spending
Australia will increase its defence budget and reconsider its defence programs. As an important ally of the United States, Australia has also unveiled a comprehensive military reform plan.
What do you think about this?