Finance guru Mark Bouris has warned Australia is hurtling towards a recession if interest rates remain high, noting we’re already deep in one on a “per capita” basis. The Reserve Bank of Australia (RBA) kept the cash rate at a 12-year high of 4.35 per cent following its August meeting.
The central bank pushed back its inflation forecasts and now expects inflation will return to its 2 to 3 per cent target in “late 2025 and approach the midpoint in 2026”. This is a slightly slower return to target than was previously forecast.
Bouris said he was “really concerned” about the RBA taking a view that Australians can “sit around at these very high interest rates, relative to where a lot of people borrowed at some years ago, for at least a period until 2026”.
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“We’re talking about the rest of ‘24, all of ‘25 and part of 2026. For me, that seems unrealistic. That looks like they’re setting us up for a bit of a fall,” Bouris said.
The Yellow Brick Road founder said he believes that if interest rates stay at their current high levels until 2026 then Australia was in for a “big problem”.
“I’m talking about a big R, I am talking about a recession,” he said.
“But more importantly, I’m talking about a recession when it comes to labor. That is an unemployment-led recession.
“That is unemployment numbers going way beyond where they’re at the moment, which is 4 per cent going way beyond that number. That bothers me, and it should bother every Australian.”
The unemployment rate edged higher to 4.1 per cent in June, up from 4 per cent the previous month, despite the creation of about 50,000 jobs.
RBA governor Michele Bullock said she and the board “doesn’t believe” Australia is heading for a recession.
“We still believe that we’re on that narrow path. Having said that, we are data dependent and there’s a number of things as we mentioned in the statement on monetary policy that could result in the economy slowing much more quickly and inflation coming down much more quickly than we expect,” Bullock said.
“We need to be alert to those and if they come to pass then interest rate cuts would be on the agenda.”
She said the board has ruled out an interest rate cut in 2024.
Australia in per capita recession
Bouris said Australia was “definitely” already in a recession on a per capita basis. This is a measure of economic activity per person.
The latest national accounts showed GDP per capita fell 0.4 per cent over the first three months of 2024 and 1.3 percent over the past year. This was the fifth consecutive quarterly fall and the biggest annual slump since the 1990s recession.
GDP rose by 0.1 per cent in the March quarter, with an annual increase of just 1.1 per cent. Outside of the pandemic, this is the weakest result in three decades.
A recession is defined as two consecutive quarters of negative growth.
What does a recession mean for Australia?
AMP chief economist Shane Oliver said the risk of recession in Australia was 50 per cent.
“A recession normally sees higher unemployment – the early 1980s and 1990s recessions saw a 5 percentage point rise, less job security, lower wages bargaining power, a fall in living standards and low confidence,” Oliver said.
“Recessions eventually also mean lower growth in the cost of living and often lead to lower levels of immigration and less household formation which could take pressure off rents and home prices.”
Recessions in Australia have also tended to be associated with “bear markets in shares”, Oliver said, meaning 20 per cent or more falls as they drive a slump in profits.
Oliver said the RBA should now be “giving consideration to a cut in interest rates” as it now risks much higher unemployment and inflation falling below target.
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