Australia growth seen weaker, recession risk rises, survey shows

AUSTRALIA’S economic expansion in 2023 will be weaker than previously anticipated and inflation is poised to be stronger, a survey showed.

Gross domestic product will decelerate faster each quarter: from an annual 2.4 per cent in the first three months of this year to 1 per cent in the final three months, a Bloomberg poll of 27 economists showed. Each quarter saw a downward revision in estimates, ranging from 0.1-0.3 percentage point.

Inflation is predicted to ease from 7.1 per cent in the first quarter to 4.1 per cent in the fourth quarter, with each three-month period seeing an upward revision of 0.2-0.3 percentage point, the survey showed. The central bank’s inflation target is 2-3 per cent over time.

Slower growth reflects the Reserve Bank of Australia’s (RBA) aggressive policy tightening cycle that has taken the key interest rate to 3.6 per cent from a record-low 0.1 per cent in May. Economists expected the cash rate would peak at 3.85 per cent and hold at that level through the first quarter of 2024.

The survey showed Australia’s recession probability climbed to 40 per cent from 35 per cent.

“The economy is now entering a more challenging phase, but it does so from a position of strength,” Gareth Spence, a senior economist at National Australia Bank said in a research note, adding that uncertainty remains elevated.

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“With inflation remaining sticky and central banks moving further into restrictive territory volatility remains high,” he said. “This is highlighted by the recent ructions in the US banking sector and at Credit Suisse — with potential spillovers for Australia via lending conditions and confidence.”

The RBA has hiked at 10 consecutive meetings as part of a global wave of tightening to try to rein in spiralling inflation. The board signalled in minutes of its March meeting released Tuesday that a pause is on the table in April, a stance likely to be reinforced by the bank stresses in the US and Europe.

A key influence will also be how the Federal Reserve balances the need to cool prices with managing financial stability risks when it meets this week. BLOOMBERG