The risk of Australia entering a recession by next year is ‘very high’

economists are warning High interest rates could see Australia's economy drastically slow modeling from s p Global shows the economy could contract to 1.2 percent next year making it one of the worst performing in the Asia Pacific region s p sliced half a percentage point from its forecast earlier this year due to fast and frequent interest rate Rises the agency predicting rates to rise to 4.6 percent in coming months the agency is not alone with that forecast let's go to amp Chief Economist Shane Oliver Shane good morning thanks for your time this morning so s p Global uh predicting that we're going to be one of the I think the five the fifth worst performer in the Asia Pacific over the next couple of years is that uh entirely shocking to you no not really I I think the reality is that Australia is very sensitive to Rising interest rates because of the very high level of household debt so far we've managed to hold up okay but I think that just reflects the hangover from the reopening of the economy and pent up demand associated with that and also the fact a lot of people have soap are being protected by being on fixed mortgage rates but that's going to end and I think we will see a sharp slowing in economic growth uh s p of course is talking about the next calendar year over the next financial year we'll probably see growth dip well below one percent and the risk is very very high that will include a recession probably starting if it does later this year or early next year so have you have you firmed on that belief Shane I haven't we're still 50 50 on it if you look at leading indicators for Australia they've Fallen quite sharply but they're not yet quite in recession territories so that sort of leaves it open a little bit um but I'd have to say the risk of becoming increasingly scared and every interest rate hike by the RBA increases that risk like s p Global we are looking for the cash rate to go to 4.6 that's a massive increase from where it was at point one percent uh just over a year ago it seems as though that's where we're heading right I mean s p Global is not alone there like you just mentioned there 4.6 so we've got two more to go um we seem pretty fixed on that are you suggesting that say we do get to 4.6 the the chance of recession becomes more and more likely look it certainly does uh look we've got some inflation numbers out tomorrow which might uh impact the Reserve Bank seeking on those things but I think in the last month or so they've become a lot more worried about wages growth causing second round effects and locking in higher inflation so even if we do get the CPI coming down tomorrow it won't necessarily stop the RBA hiking rates again um so that that's the risk here it's it's all about the consumer other parts of the economy are in somewhat better shape but the household sector is very vulnerable to higher interest rates even The Reserve Bank has done analysis showing that 15 of people on a on a variable rate mortgage will face negative cash flow this year uh if if the cash rate goes to 3.75 at already we're way above that so we are going to see a lot of stress in the in the household sector okay Shane appreciate it thank you

Channel: Sky News Australia

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Length: 3min 6sec (186 seconds)

Published: Mon Jun 26 2023