Recession Unlikely Despite Interest Rate Hikes and China Economic Woes: Treasurer

Treasurer Jim Chalmers AAP Image/Jono Searle

Treasurer Jim Chalmers has voiced his concerns about the weakening Australian economy in an interview on Sky News Aug. 27, although he indicated he believed a recession was unlikely.

On fears of a recession, Dr. Chalmers said the downturn in China’s economy is a major concern for Australia, although it’s unlikely to trigger a local recession.

The RBA’s forecasts also back Dr. Chalmer’s outlook with their year-to-December forecast estimating GDP will slow to 0.9 percent, down from 1.6 percent in the year to June.

Customers are seen in the food court area of Broadway Shopping Centre in Sydney, Australia, on Aug. 6, 2020. Lisa Maree Williams/Getty Images

Dr. Chalmers also indicated that the impact of interest rate rises and a slowdown of the Chinese economy were the two biggest issues facing Australia’s economy.

“It is concerning to see the weakness, the softness in recent weeks and months in the Chinese economy because it has obvious implications for us here in Australia,” he said.

Reliance on Exports to China

The largest export market for Australia is China, which accounts for around a third of all our exports.

In recent weeks, China has experienced a slowdown in the economy, with deflation and exports declining and unemployment rising.

The retail sector is also weakening, while property sector concerns and local government debt are plaguing the country.

Mr. Chalmers told ABC Radio National on Aug. 25  that “all of those things together paint a pretty concerning picture.”

“What we’re seeing in China right now is a very different combination of challenges compared with most of the rest of the world,” Mr. Chalmers said.

Their economy is slowing quite considerably, they’ve actually got deflation, they’ve got a weak retail sector, there are particular concerns about the property sector, there’s some uncertainty around the way that their debt is set up, particularly their local government debt and their exports have been a bit weaker.

“We monitor these developments very closely as you would expect because in our economy.”

An economic slowdown in China would see demand for Australian exports fall and will have a detrimental impact on the Australian economy as it could hit jobs and growth.

Impact of 12 Interest Rate Hikes in a Row Being Felt by Consumers

Cost of living pressures continue to bite with recent interest rate rises filtering through to the wider economy, as evidenced by slowing consumption and easing inflationary pressures.

Several consumer metrics point to weakening consumer demand and an increase in financial stress in the community.

CreditorWatch released their Business Risk Index report on Aug. 23, with their chief economist Anneke Thompson noting Australians are already showing signs of belt-tightening.

“Household consumption has already slowed considerably, with the slowdown expected to worsen as more households come off fixed-rate home loans,” Ms. Thompson said.

Finder’s Consumer Sentiment Tracker Aug. 23 results showed that 74 percent of Australians surveyed were somewhat or extremely stressed when asked, “How stressed are you with your current financial situation?”

Finder’s August survey also showed that 61 percent of survey respondents thought that Australia would experience a recession in the next year, up significantly from August 2022’s 35 percent.