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Recession or not: Chalmers says storm clouds are gathering

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The risk of recession has tipped from “possible to probable”, the Treasurer has said.

The government is growing increasingly concerned about the likelihood of a recession in major economies, with Treasurer Jim Chalmers signalling on Tuesday that the global economic outlook is “difficult”.

“The storm clouds are gathering again in the global economy and that is not irrelevant to us,” Mr Chalmers told the media on Tuesday, following the Reserve Bank’s (RBA) latest interest rate boost.

While Australia faces slightly less damning conditions, Mr Chalmers said that the local economy would not be spared if a global recession were to occur.

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“I think the weight of opinion around the world is that the global situation has gotten much worse, even in the last few weeks,” the Treasurer said, alluding to surging inflation and the aggressive rate hike cycle adopted by many central banks globally. 

Economists are slightly more optimistic about the local predicament. 

While most consider US recession a sure thing, they paint a slightly more hopeful picture for Australia.

In a statement on Tuesday, VanEck’s Cameron McCormack said “a US recession, rather than a mild dip, now appears to be the base case”.

But while rapidly rising interest rates and international turmoil mean that the outlook for Australia remains murky, Mr McCormack acknowledged that a “recession doesn’t look as likely in Australia”.

“The RBA likely still has at least another 1 per cent to go on rates. But for the moment, can moderate the pace while praying wages and inflation stay under control,” Mr McCormack said.

Economist puts risk of local recession at 40 per cent

While still fairly optimistic, the dark storm clouds have pushed Dr Shane Oliver to slightly tweak his recession expectations. 

Namely, AMP’s chief economist told InvestorDaily that the risk of recession in Australia now sits at about 40 per cent — up from 30 per cent back in August. 

In his latest insights publication, Dr Oliver acknowledged that “there is now a high risk of global recession which will impact Australia”.

“The 23 per cent plunge in global share markets, falling commodity prices, central banks including the Fed willing to risk recession, the Fed’s record of tightening cycles ending in a crisis, the rising skittishness of financial markets, the deteriorating global growth outlook and domestically very low consumer confidence, and rapidly weakening housing indicators warn of much weaker conditions ahead which will hit jobs and drive weaker inflation,” he said. 

Turning to the RBA's latest decision, he noted that “aggressively tightening into all this without pausing for breath risks knocking the Australian economy into a recession we don’t have to have”.

Global recession at least ‘somewhat likely’

Last week it emerged that seven out of 10 globally based chief economists believe a global recession is at least somewhat likely over the coming year, according to a new survey by the World Economic Forum (WEF).

“The grim outlook for growth is being driven in part by high inflation, which has triggered sharp monetary tightening across many economies,” WEF said.

Similarly, a few weeks earlier, the World Bank published a new study revealing that as central banks across the world lift interest rates aggressively, the likelihood of a global recession in 2023 is rising.

Ayhan Kose, the World Bank's acting vice president for equitable growth, finance, and institutions, warned that while recent tightening of monetary and fiscal policies will likely prove helpful in reducing inflation, the high synchronous nature of tightening across countries could be “mutually compounding” in steepening the global growth slowdown.

“Policymakers in emerging market and developing economies need to stand ready to manage the potential spillovers from globally synchronous tightening of policies,” Mr Kose said. 

The experts from the study did, however, conclude that central banks could persist in their efforts to control inflation without tipping into a global recession, but noted that this would require clear communication of policy decisions, and careful calibration of fiscal support withdrawal with continued targeted relief for vulnerable households.

Recession or not: Chalmers says storm clouds are gathering

The risk of recession has tipped from “possible to probable”, the Treasurer has said.

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Maja Garaca Djurdjevic

Maja Garaca Djurdjevic

Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.

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