Economists Warn Recession Risk as RBA Likely to Raise Rates
A poll of economists shows growing expectations of a recession in Australia within six months, as the Reserve Bank of Australia is expected to lift its cash rate following higher-than-expected inflation data.
Markets are pricing an 82% chance that the Reserve Bank of Australia will raise the cash rate by 0.25 percentage points at its next board meeting, which could bring the rate to its highest level since 2008. The expectation follows new Australian Bureau of Statistics data that showed underlying inflation at 3.5% in September, above the RBA’s 2-3% target.
A Finder.com.au poll of 34 economists and housing-market analysts found 35% now consider a recession likely within the next six months, up from 30% a month earlier, while 29% said they were unsure. Three quarters of respondents agreed a rate hike on Melbourne Cup day is probable.
"RBA commentary and guidance has been hawkish and the higher than expected September inflation data, along with ongoing upside risks to inflation, leaves the RBA with little choice but to hike again," AMP chief economist Shane Oliver told the panel.
Oliver cautioned that further tightening could increase the risk of a recession. Corinna Economic Advisory’s Saul Eslake wrote that senior RBA officials appear less tolerant of persistently high inflation and more willing to accept temporary higher unemployment.
Ratings agency Equifax reported that arrears among first-home buyers were rising, reaching about 1% and showing an upward trend.
"First-home buyers do exhibit structurally higher arrears rates when compared to the rest of the market, and these defaults have been creeping up as sustained challenging macroeconomic conditions bite," Equifax chief solutions officer Kevin James said.
Housing-market economist Andrew Wilson warned that a further rate increase could accelerate the decline in national home prices, which have already fallen 5.5% – a contraction comparable to 2018.