Australia ‘on the cusp of genuine recession’ after figures show alarming drop

Australia is teetering on the brink of a genuine recession, as recent figures reveal a concerning decline. The Reserve Bank's decision to maintain interest rates at a 12-year high of 4.35 per cent has prompted widespread apprehension among Australian mortgage holders.

At its recent meeting, the RBA acknowledged that while inflation is showing signs of moderation, the decline is slower than anticipated. This uncertainty in the economic outlook has led the bank to emphasize the need for vigilance and flexibility in its approach to monetary policy.

Economist Stephen Koukoulas, formerly an advisor to the Prime Minister's Department, has emphasized the pivotal role of Australia's lackluster retail sales in the coming months. Koukoulas advocates for a prompt reduction in interest rates to stimulate the sluggish economy, exacerbated by soaring living costs induced by pandemic policies.

The economic strain is evident in the daily lives of Australians, who are grappling with exorbitant supermarket prices and escalating essential service charges. Coupled with skyrocketing house prices, this financial pressure has pushed many essential workers to rely on charities to make ends meet.

Koukoulas warns that failure to address the weakening retail figures could propel Australia into a recession. Per capita retail sales have plummeted by 0.4 per cent in the March quarter, marking the sixth downturn in seven quarters.

UNSW Economics Professor Gigi Foster suggests that the RBA's decision to hold interest rates may be influenced by upcoming tax cuts scheduled for July. These cuts are expected to inject additional funds into the hands of average workers, potentially bolstering consumer confidence and spending.

Despite these considerations, some analysts advocate for Australians to enact a "DIY recession" by curtailing discretionary spending on luxuries like entertainment and dining out. This voluntary belt-tightening, they argue, could lead to a shorter, less severe recession compared to the alternative of enduring a prolonged economic downturn.

The Commonwealth Bank cautions that further rate hikes remain a near-term risk, with anticipated cuts likely delayed until 2025. Strong population growth, fueled by net overseas immigration, has contributed to inflationary pressures, particularly in housing-related sectors.

With the cash rate forecasted to reach 4.4 per cent by December, the RBA faces the challenging task of navigating economic uncertainties while striving to achieve its inflation targets.