Some analysts predict Australia is facing a 50 per cent chance of a recession in the next 12 months. The Prime Minister and the Treasurer say they are optimistic this won't happen. Neighbours like New Zealand have entered a technical recession.
Australia's 80 per cent recession risk
Research from the Reserve Bank estimates that Australia's risk of recession over this year and next could be as high as 80 per cent.
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.
The consensus of economists in a Bloomberg survey shows a 65% chance of a recession in the next 12 months, up from 31% a year ago.
Economic growth is expected to slow this year
GDP growth is expected to slow to around 1¼ per cent over 2023, with GDP per capita declining over the year (Graph 5.4). The weaker near-term outlook relative to three months ago reflects the softness in recent activity data.
Economic growth will continue to slow throughout 2023 under the impact of rising interest rates aimed at curbing inflation but Australia can avoid recession, according to CBA economic analysis released with the bank's half year results presentation.
The comments came as Deloitte released its March 2023 Business Outlook report. "That downgrade is centred on our households, and a 'consumer recession' is now forecast in 2023, with household spending expected to finish the year below where it started.
Should You Be Worried About a Recession? If the U.S. does slip into a recession sometime in the second half of 2023 or early 2024, there's no reason for investors to panic. First off, historically recessions don't last very long. The average duration of a U.S. recession since World War II is just 11.1 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.
Although it's possible, things would have to deteriorate very quickly in the economy, and the jobs market specifically, for a downturn to start this year. “We're running out of time for a 2023 recession,” Justin Wolfers, an economics professor at the University of Michigan, told CNN.
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. Investors may be able to find bargains on assets that have decreased in price during a recession.
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.
Although Australia has avoided the worst effects of a recession for almost 30 years, 2023 may be the year of a recession - if one thing keeps rising. With GDP on an upward trajectory, a 0.6 per cent uptick to be precise, and unemployment at an all-time low at 3.5 per cent - we're in a good economic situation.
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.
We know that recessions vary in severity – just how bad will the 2024 recession be? We expect the 2024 recession will be a relatively mild one for US Industrial Production. However, before breathing a sigh of relief, understand that the recession will not be mild for every industry.
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.
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.
Interest rates typically fall once the economy is in a recession, as the Fed attempts to spur growth. Refinancing debt and making more significant purchases are ways to take advantage of lower interest rates.
By April 2024, it is projected that there is probability of 68.22 percent that the United States will fall into another economic recession. This is an increase from the projection of the preceding month where the probability peaked at 57.77 percent.
Increased stress all around. One of the most prevalent ways that recessions affect the average person is simply that stress goes up. It doesn't matter if you're comfortable in your job security and have a hefty financial cushion, or if you're struggling to make ends meet and have $100 in your savings account.
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 recession has been rising as the Federal Reserve has raised interest rates in its ongoing battle against inflation.
U.S. strategists expect a meaningful earnings recession of -16% for 2023 and a significant recovery in 2024.
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.