Australian Government Says Recession Won’t Happen Amid Uncertainty in Interest Rate Movements

Minister for Finance Katy Gallagher during question time in the Senate chamber at Parliament House in Canberra, Australia, on June 14, 2023. AAP Image/Mick Tsikas

The Australian government has once again rejected the possibility of the economy falling into a recession following the Reserve Bank’s latest interest rate decision.

On July 4, the Reserve Bank of Australia (RBA) announced a pause on its interest rate hiking cycle, effectively maintaining the official cash rate at 4.1 percent throughout the month.

Since May 2022, the RBA has embarked on an aggressive monetary tightening policy to fight off inflation, resulting in the official cash rate surging from the historic low of 0.1 percent to the current level.

While the bank said inflation had peaked, it warned that further interest rate increases might be implemented in the coming months if inflation did not drop fast enough.

Many economists have raised concerns that the 12 successive rate hikes could put Australia on the verge of a recession–a business cycle contraction technically defined as two consecutive quarters of negative economic growth.

Australian Government Does Not Expect A Recession

In an interview with ABC Radio, Financial Minister and Acting Treasurer Katy Gallagher said the treasury department was not expecting a recession.

“That’s not our expectation. That’s not the Treasury forecast, and in the decision of the bank yesterday, they do have a line in there that says the board is still expecting the economy to grow as inflation returns to the two to three percent range,” she said.

However, the minister noted the government was aware that economic growth was slowing.

“We can see it in a range of economic data that’s coming in about growth across the economy and sort of confidence consumption,” Ms. Gallagher said.

“All of those measures are showing that economic growth is slowing, which is what we’re forecast in the budget.”

While Prime Minister Anthony Albanese acknowledged that many Australians are doing it tough, he said the country had a “two-speed economy.”

“Some people are doing it really tough, and then you have positive sides at the same time in the economy,” he said.

“465,000 jobs [were] created in our first year. Inflation is going down, and that’s a good thing.”

Opposition’s Response

Meanwhile, Shadow Treasurer Angus Taylor said there was a real risk of a recession.

“We’ve still got a lot of inflation out there. There is a lot of pain already there, and more will come through the pipeline as people move from fixed rates to floating rates,” he told Sky News.

Mr. Taylor also urged the government to focus on fighting inflation instead of doing other things.

“Make it a priority, fighting inflation first, second, and third. That’s where the government has got to start,” he said.

“All ministers have got to be on the job, including the prime minister, who is interested in other things than talking about the cost of living pressure right now.”

Shadow Treasurer Angus Taylor at the Leaders Summit on Climate in Sydney, Australia, on April 22, 2021. AAP Image/Mick Tsikas

Pointing to the $185 billion in extra spending included in the May federal budget, the shadow treasurer said the government needed a proper fiscal policy.

“That’s an enormous fuel they are throwing on the fire,” he said.

“They need to have a fiscal policy to take the pressure off, not adding to the pressure.”

Mr. Taylor also suggested the government improve productivity, which he said was in free fall.

According to the Australian Bureau of Statistics, Australia’s output per hour worked, a measure of labour productivity, dipped by 0.3 percent in March.

Compared to the previous year, the figure plunged by 4.5 percent, the largest annual decline since 1979.

Economists’ Views on Recession

As the RBA continues to lift interest rates, economists have started to split on the possibility of a recession in Australia, which has not occurred since the early 1990s.

A survey of 27 leading economists by The Conversation, a publisher of research-based news and analysis, showed that 12 of them believed a recession was likely to happen.

AMP chief economist Shane Oliver said the RBA’s hints at further interest rate hikes in the latest board meeting could slightly increase the risk of recession.

“We think that the RBA has done more than enough on rates to slow the economy and bring inflation back to target,” he said.

The financial services company has forecasted that the risk of a recession is currently at around 50 percent.

A vendor stocks his stall with fresh produce at the Queen Victoria Market in Melbourne, Australia, on July 4, 2023. William West/AFP via Getty Images

Meanwhile, Michael Knox, the chief economist of the stockbroking and wealth management network Morgans, said Australia’s economic growth would soften in the coming period but would avoid a recession.

“Over the next year, Australian GDP should decline to a growth rate of around one percent per annum,” he told The Epoch Times.

“This is enough to allow unemployment to rise by about 0.8 per year. Unemployment should rise gradually from around 3.5 percent now to around five percent by the end of 2024.

“Higher unemployment will put downward pressure on inflation, allowing the RBA to be back to the two percent target by 2025.”

Similarly, Peter Tulip, the chief economist of the Centre for Independent Studies, believed a recession was not on the horizon.

“The chance of Australia falling into recession is extremely low. Recessions in Australia are very rare and are preceded by unusual stress,” he previously told The Epoch Times.