Australia risks recession as inflation remains stubbornly high
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Australia’s economy is facing a difficult period, with weak growth and stubborn inflation creating a major challenge for the Reserve Bank.
HSBC chief economist Paul Bloxham warned the RBA may have to choose between keeping interest rates high enough to control inflation and risking a recession.
National accounts figures are expected to show annual economic growth of around 1.8 per cent for the year to June. That would be well below Australia’s long-term average of about 3 per cent.
HSBC expects the economy to have grown by just 0.1 per cent in the June quarter, below market forecasts of 0.2 to 0.3 per cent.
At the same time, inflation remains above the RBA’s 2–3 per cent target. Headline inflation eased to 3.5 per cent in July, but underlying inflation remained at 3.6 per cent.
Bloxham said stronger growth could increase inflation pressures and force the RBA to raise interest rates. But further rate rises could weaken spending, housing activity and employment, increasing the risk of recession.
If growth remains weak while prices continue rising, Australia could face stagflation — a combination of slow economic growth, high inflation and rising unemployment.
Weak productivity is another major concern. RBA forecasts show labour productivity fell 0.5 per cent in the June quarter compared with a year earlier.
Bloxham said improving productivity should be a key priority for the government, with greater business investment, competition and innovation needed to lift Australia’s economic growth potential.
Treasurer Jim Chalmers said the government had already introduced a broad range of reforms aimed at improving productivity and reducing regulatory barriers.
The RBA now faces a difficult balancing act: bringing inflation under control without pushing an already slowing economy into recession.
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Source : News.com
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