Australia\u2019s economic risks are rising with a trio of economic shocks set to smash an already slow growth rate. <\/p>\n
In a grim market update, HSBC chief economist Paul Bloxham has sounded the alarm on the potential of a recession as the economy cools. <\/p>\n
Australian Bureau of Statistics (ABS) figures released on Wednesday show the national economy grew by 2.5 per cent for the year.<\/p>\n
But it is starting to slow, with gross domestic product up just 0.3 per cent in the March quarter, significantly below the 0.9 per cent quarterly growth in December. <\/p>\n
Mr Bloxham warned the Australian economy was now at risk of falling into a recession. <\/p>\n
\u201cOur view, since March, has been that GDP is likely to contract in Q2 \u2013 we see the collection of indicators above as supporting that view,\u201d Mr Bloxham said. <\/p>\n
\u201cThe risk is rising that there may be two consecutive quarters of falling GDP.\u201d<\/p>\n
A technical recession is two quarters in a row of negative GDP growth. <\/p>\n
While the overall economic pie expanded, GDP per person slid 0.1 per cent for the first decline since March 2025 because the pace of growth was slower than the relative increase in the population.<\/p>\n
AMP deputy chief economist Diana Mousina warned that even if Australia didn\u2019t officially enter a recession, there were concerns. <\/p>\n
\u201cNo doubt there will be concerns of a \u2018per capita recession\u2019 now \u2013 we have had plenty of those in the past without an actual technical recession occurring,\u201d Ms Mousina said. <\/p>\n
Trio of shocks <\/p>\n
The worst is not yet over with economists warning the full force of three major economic shocks is still to hit and the damage could be severe.<\/p>\n
According to HSBC, economic pain felt in March, April and May has severely weakened consumer sentiment. <\/p>\n
\u201cThese include the RBA\u2019s three back-to-back rate hikes and the Middle East conflict shock,\u201d Mr Bloxham said. <\/p>\n
\u201cA third shock may have also arrived in the form of the budget \u2013 given it is expected to weaken housing prices and housing turnover and given the economic uncertainty that comes from substantially shifting tax arrangements.\u201d<\/p>\n
Oxford Economics Australia head of economic research and global trade Harry Murphy Cruise agrees, warning the Middle East conflict was only one month old in the March quarter, with expectations of things getting worse before they get better.<\/p>\n
\u201dSurging inflation, sky-high oil prices and shattered confidence will collide to crimp spending through the rest of the year,\u201d Mr Murphy Cruise wrote.<\/p>\n
\u201dWe expect per capita household spending to be broadly flat in 2026, while softer hiring will push unemployment close to 5 per cent through 2027.\u201d<\/p>\n
KPMG chief economist Brendan Rynne said the national economy had slowed to a crawl and there was no growth in sight.<\/p>\n
\u201cAustralia has for some time had the rest of the world add to our economic prosperity through purchasing our goods and services, particularly our natural commodities, at increasing rates and often at increasing prices,\u201d Mr Rynne said.<\/p>\n
\u201cUnfortunately, however, we aren\u2019t in the same position today, with Australia, like most non-major oil producing countries, experiencing a negative term of trade shock due to the ongoing Middle East conflict.\u201d<\/p>\n
Working harder and getting less<\/p>\n
Mr Bloxham also pointed to Australia\u2019s productivity \u2013 measured by dividing GDP by hours worked \u2013 falling 0.6 per cent over the quarter.<\/p>\n
It is now just 0.3 per cent higher compared with this time last year, tracking along a decade low. <\/p>\n
\u201cWith inflation well above target and growth having been well above potential \u2013 given very weak productivity growth \u2013 we see the only likely pathway to getting inflation down over a reasonable timeframe is to push the economy into a downturn,\u201d Mr Bloxham said.<\/p>\n
In a press conference following Wednesday\u2019s GDP release, Treasurer Jim Chalmers was quizzed on Australia\u2019s slowing productivity.<\/p>\n
\u201cDespite all of the doomsayers and all those who want to talk the Australian economy down, we are seeing a boom in private investment and that is a good thing,\u201d he said.<\/p>\n
\u201cIn time, by seeing these investment figures flow through into our economy, that will be an important part of shifting what has been a couple of decades now of poor performances on productivity.\u201d<\/p>\n
The fall in March\u2019s productivity came despite a three-day roundtable in August aimed at addressing the slowdown in output.<\/p>\n
Deloitte Access Economics partner Stephen Smith said Wednesday\u2019s results were \u201cuncomfortable\u201d but unlikely to stop further interest rate pain for households.<\/p>\n
\u201cThe economy is cooling but not in a way that suggests inflation will fall neatly back to target,\u201d he said.<\/p>\n
\u201cProductivity weakened again and unit labour costs remain elevated, meaning the Reserve Bank will see softer activity but not necessarily evidence of easing domestic cost pressures.<\/p>\n
\u201cA fourth rate hike in 2026 is still on the table.\u201d<\/p>\n
RBA set to hike rates<\/p>\n
While the national economy is slowing and productivity growth is stalling, the RBA is still tipped to lift rates to get rid of persistent inflation.<\/p>\n
ABS stats show yearly headline inflation fell from 4.6 per cent in March to 4.2 per cent in April.<\/p>\n
This was due to the Australian government temporarily halving the fuel excise and giving back GST revenue, which in part eased some of the inflationary pressures.<\/p>\n
But the all-important trimmed mean inflation rate \u2013 which the RBA watches because it strips out volatile and seasonal items \u2013 rose to 3.4 per cent for the 12 months to April, showing underlying price pressures are still in the Australian economy.<\/p>\n
Both of these figures are above the RBA\u2019s 2-3 per cent target.<\/p>\n
\u201cIn the meantime, rising inflation expectations and strong wage pressures across industries will continue to worry the Reserve Bank,\u201d Ms Mousina said. <\/p>\n
\u201cWe therefore expect two more rate hikes in this cycle, taking the cash rate to 4.85 per cent by year end.\u201d<\/p>\n
RBA governor Michele Bullock said many households were feeling the pinch, although she said higher interest rates over time would help ease rising cost-of-living pressures.<\/p>\n
\u201cAs you know, the monetary policy board has increased the cash rate by 75 basis points in total this year,\u201d she told a senate budget estimates committee on Thursday.<\/p>\n
\u201cThese increases have been necessary to tighten financial conditions and slow growth in demand in the economy to ensure we get on top of inflation.<\/p>\n
\u201cWe have already seen some signs that this tightening has worked, but it will take one to two years for the full effects to flow through the economy.\u201d<\/p>\n
The central bank has lifted the cash rate by 25 basis points at each of its three meetings so far this year in a bid to curb rising inflation.<\/p>\n
\u201cWhat these increases will do, however, is help to contain the domestic inflationary pressures and second round effects from higher oil and commodity prices,\u201d Ms Bullock said.<\/p>\n
\u201cNow I recognise this is a difficult time for many households facing cost-of-living pressures, but it is important we bring inflation under control.\u201d<\/p>\n
Ms Bullock said lifting interest rates was the least worst option, with higher inflation having longer lasting impacts on everyone.<\/p>\n","protected":false},"excerpt":{"rendered":"Australia\u2019s economic risks are rising with a trio of economic shocks set to smash an already slow growth…\n","protected":false},"author":2,"featured_media":720359,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[64,63,99,164,115817],"class_list":["post-720358","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-au","tag-australia","tag-business","tag-economy","tag-newswire-business"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/720358","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=720358"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/720358\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/720359"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=720358"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=720358"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=720358"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}