According to the definition of a "technical recession," we're still a while away from recording a recession this year (if at all). The most recent GDP data we have is for the December quarter. Economic activity grew by 0.5 per cent in that quarter.
A recession is a significant decline in economic activity that can last months or even years. Most experts agree we aren't in a recession yet, but that we could be headed for one in 2023. There are steps you can take to prepare emotionally and financially for a recession.
How close is Australia to a recession? In GDP growth terms, Australia's economy is slowing, with growth dropping to 0.2% in the March quarter after two quarters of 0.6%. When population growth is added, per-capita GDP shrank by 0.2% in the first three months of 2023 after two quarters of just 0.1% growth.
Australia is moving closer towards a recession and its chances of experiencing one in the next year is sitting at around 50 per cent, according to economists.
Economic experts are once again ringing the alarm bells over an imminent downturn. A US recession is coming, they say, in the second half of 2023. That time frame begins less than three weeks from now.
In general, a recession lasts anywhere from six to 18 months. For example, the Great Recession that started in December 2007 lasted 18 months. But the recession prompted by the pandemic in 2020 only lasted two months.
In a best-case scenario, the U.S. will likely see a 'soft landing' with low/slow growth across 2023 before picking up in 2024. However, a downside scenario is a real possibility and could see the U.S. enter a prolonged recession lasting well into 2024, as is currently forecast for the UK and Germany.
If Australia enters a recession, many people will have a tough time, whether through job loss, home loss, or even just a struggle to pay the bills. Whole markets will tank or lose significant value and many businesses will likely go bankrupt.
Domestic demand growth stalled in the December quarter, and timely indicators suggest subdued growth in early 2023. Household consumption growth is expected to remain sluggish through this year as inflation and higher interest rates weigh on real disposable income.
In mid 2022, the panel assigned a 20% probability of recession in the next two years, but by February of this year that figure had grown to 26%. Most recently, the IMF downgraded growth forecasts for Australia from 1.9% in 2023 to a more timid 1.6%.
1991–1992: The early 1990s recession mainly resulted from Australia's efforts to address excess domestic demand, curb speculative behaviour in commercial property markets and reduce inflation.
There are many factors that have driven Australia's strong period of growth since the last recession in 1991, including strong population growth, robust export growth and balanced growth across industries.
Preparing for a recession comes down to using strong economic times to your benefit. Focus on limiting your spending, forming a budget, building an emergency fund and eliminating high-interest debts.
Recessions have plenty of negative consequences, but they can provide a necessary reset for the markets. Higher interest rates that often coincide with the early stages of a recession provide an advantage to savers, while lower interest rates moving out of a recession can benefit homebuyers.
Many economists and financial experts are confident a recession will happen in 2023, but some, like Jamie Dimon, CEO of JP Morgan, are pushing predictions for a recession toward the end of 2023, feeling they might have overestimated the severity of and potential for a slowdown in the economy.
U.S. equities may disappoint in 2023, but patient investors can find potential income and returns in other markets. A grueling bear market, touched off by decades-high inflation and an aggressive Federal Reserve response, made 2022 one of the most challenging years for investment returns in the last half century.
Australia may continue to be the lucky country and avoid a recession in 2023, but its global peers may not be so fortunate. Chief economist at Australian Retirement Trust Brian Parker says that Australia is relatively well placed to handle the economic turmoil.
A term deposit.
Deposits up to $250,000 in savings accounts and term deposits with Australian banks are protected by the government, so if something were to happen to the bank (which is unlikely), your deposit would be safe. This is part of the Australian Government Guarantee Scheme.
Prices could fall further
If you buy in a recession, there is always the risk that prices could fall even further. That said, Australian property prices usually tend to rise in the long run, especially in capital cities. So if you're prepared to spend some time owning your property, you're likely to come out ahead.
Geopolitical tensions, energy market imbalances, persistently high inflation and rising interest rates have many investors and economists concerned that a U.S. recession is inevitable in 2023. The risk of a recession rose as the Federal Reserve raised interest rates in its ongoing battle against inflation.
The Bottom Line
The Great Recession lasted from roughly 2007 to 2009 in the U.S., although the contagion spread around the world, affecting some economies longer. The root cause was excessive mortgage lending to borrowers who normally would not qualify for a home loan, which greatly increased risk to the lender.