HSBC economist sees 50% chance Australia could slip into recession as housing market cools
HSBC chief economist Paul Bloxham warned that a fifth consecutive interest-rate rise may push Australia into a recession by early next year, citing a slowing housing market, while the Reserve Bank’s chief economist said no near-term recession risk is evident.
Australia faces a heightened risk of recession, according to HSBC chief economist Paul Bloxham, who placed the probability at 50 percent. Bloxham told NewsWire that the Reserve Bank’s series of interest-rate hikes has tightened financial conditions, leading to a rapid slowdown in the housing market, which he said could tip the economy into a downturn.
"We think a fair bit of tightening has been delivered into the economy by the Reserve Bank due to its rate rises," Bloxham said.
"We see a fairly rapidly cooling housing market and we think this is the main thing that will push the economy into a down swing."
He added that growth is expected to stall around the turn of the year, with little expansion projected for the fourth quarter of this year and the first quarter of next year, raising the possibility of two consecutive quarters of negative GDP – the technical definition of a recession in Australia.
Reserve Bank chief economist Sarah Hunter, speaking at a Senate inquiry, disagreed, stating that current indicators do not point to an imminent recession.
"We are monitoring a very wide range of indicators across the real economy. At the moment none of those indicators are suggesting that the economy is in or is heading into a recession in the near term," Hunter said.
Bloxham highlighted the broader impact of falling house prices, which have declined for six straight months and fell 4.7 percent in the September quarter, the steepest drop on record. He noted that reduced housing turnover affects consumer spending, lowers stamp-duty revenue, and hurts related industries such as real estate agents, mortgage brokers and construction, potentially raising unemployment.
Inflation remains above the Reserve Bank’s 2-3 percent target, with headline CPI at 4.3 percent and trimmed-mean inflation at 3.6 percent for the year to September. Bloxham said the central bank is likely to prioritize bringing inflation back to target, even if it leads to a harder economic landing.
"The RBA needs to get inflation back to target and the thing that has shifted in the last little while is that the bank has put a higher priority on getting inflation back to target soon," he said.
Major banks have updated their forecasts, with the Commonwealth Bank expecting the cash rate to rise to 4.85 percent after the upcoming Melbourne Cup meeting. The next rate decision is anticipated for December, potentially marking the final hike of the year.