Reserve Bank of Australia (RBA) internal research from September 2022 concluded there was a one-in-two chance that it would be able to return inflation to its target range of 2-3% without triggering a recession.
Modelling by the RBA at the time found the chances of a recession by September 2024 ranged from 65% to 80%.
This modelling also concluded that there was a 40-70% chance of a recession by September 2023.
The modelling used the Sahm Rule, which defines a recession as when the quarterly average of the unemployment rate rises by at least 0.75% above its minimum over the previous 12 months.
That is a different measure to the ‘technical recession’ rule, which defines a recession as two consecutive quarters of negative real GDP growth.
The modelling warned that “returning inflation to target could involve significant job losses even when monetary policy responds to developments”.
The odds of an Australian recession are also considerably lower if the US economy remained out of recession, whereas a severe US contraction made a local recession far more likely.
The main driver of any Australian recession would be a contraction in household consumption.
It is the main driver of the nation’s growth, and where consumption goes the economy usually follows:
The RBA’s latest monetary policy statement explicitly forecast a per capita recession for Australia, with GDP expected to rise by 1.25% this year and about 2% by mid-2025.
But due to record high immigration, Australia’s population will grow by at least 2% this year, meaning the economy will contract in per capita terms.
This week’s Federal Budget has likewise predicted a per capita recession for Australia.
Australians will be all too familiar with this outcome given immigration-driven population growth has been the key driver of the economy for more than a decade.
This high population growth is also the main reason why Australia remained ‘recession-free’ in the 20 years leading up to the pandemic, despite the nation experiencing regular dips in per capita GDP:
The unprecedented net overseas migration of the Albanese government, which is projected to hit 400,000 this financial year, will likely prevent Australia from entering a technical recession.
However, everybody’s share of the economic pie will shrink, making it feel like one.
