Sometimes I hate being right. I don’t claim to be more than a moderately informed observer of economics, but even to me it seems pretty obvious that deep economic trouble lies in our near future. It gives me no joy to find that far better informed economic observers agree with my recent concern that Australia is on the brink of recession.
The Reserve Bank’s former head of financial stability says this week’s interest rate hike – and the near certainty of more to come – means it’s less a question of if the country will be tipped into recession, but how deep the downturn will be.
Not so much the recession we had to have, as the recession we can’t avoid. Wouldn’t you know it, thanks once again to a Labor government. And once again, homeowners are being slugged hard, to compensate for Labor mismanagement.
Challenger chief economist Jonathan Kearns, who joined the investment firm earlier this year after nearly three decades at the RBA, told The Australian there had been a marked shift in rhetoric from governor Philip Lowe in recent weeks, and that another “couple” of rate rises to 4.6 per cent were now firmly on the cards.
As some argue, 5% interest rates are nowhere near the 15% they were during the Keating recession. But mortgages back then were a fraction of what they are now, meaning that the impact of rates in the 90s was nowhere near as punishing as they are now.
Dr Kearns said that given the scale of the past year’s monetary policy tightening it was difficult to predict how many households would fall behind on their mortgages, or ultimately be forced to sell their homes.
“I think we don’t think we have a strong guide for that because household debt is much higher than it has been in previous rate cycles,” he said. “Also, this increase in rates is larger and much, much faster. So you’re starting to get some borrowers facing interest rates exceeding what their mortgage was tested on, and that is clearly a challenge.
Albanese claims to be confident in the economic outlook. Not everyone, though, is as confident in his Arts-degree Treasurer as he is.
Dr Lowe this week said he still believed the bank could tame inflation without sending unemployment sharply higher, although the path would be “difficult” and “bumpy” […]
KPMG chief economist Brendan Rynne said he expected the economy to grind to a halt in the second half of this year, and that it would not take much to get two consecutive quarters of economic contraction – the technical definition of a recession. “The narrow path is as wide as the Kokoda Trail,” Dr Rynne said, although with real GDP per capita shrinking by 0.2 per cent in the March quarter, “whether or not it’s a technical recession doesn’t matter”.
The Australian
And that’s the nub of it: when your mortgage repayments are soaring even higher than your power bills, and the cost of food is rising by the week, whether or not it’s “technically” a recession is pretty immaterial.
Tell me this isn’t a Labor government. Again.