Tough times, but no recession

Recession Interest rates Zenith RBA

The Australian economy is likely to avoid a recession, but will continue to face difficult times over the course of this year.

Research house and managed account provider Zenith Investment Partners has forecast the Australian economy is not headed for a recession, but will still experience challenging times in the immediate to medium term.

“I think it’s [going to be] a real grind over the next couple of quarters still, but if consumers, and [in particular] homeowners, here start to get wind of a possible rate cut or two, then that [will] protect the [economic] downside,” Zenith Investment Partners head of asset allocation Damien Hennessy predicted.

“We don’t think there is a recession coming here, that’s certainly not our view. Growth has already slowed … [so there is evidence of] a slowdown. A needed slowdown from where we were, but that probably can carry on for another year afterwards.

“So it’s hard to see all that spending that’s occurred bouncing back quickly. You don’t normally bounce back sharply from a soft landing, you just grind your way higher again.”

With regard to official interest rates, Hennessy pointed out the recent consumer price index (CPI) number indicates a reduction might materialise earlier than expected.

“Our view had been that the RBA (Reserve Bank of Australia) wouldn’t be in a position to cut rates probably until the December quarter, partly because the inflation data was lagging the rest of the world,” he noted.

“But [the latest CPI number] was a very good outcome … so if you look at a six-month window, you’d say that inflation here is probably 3.5 to 4 [per cent]. Still too high, but it is getting within striking distance of the RBA’s target.

“So if anything it maybe brings forward the possible easing [of interest rates].”

He stressed the current economic circumstances do not justify having the RBA reduce the official interest rate in the first half of the year, but forecast a cut is likely this year after June.

“That’s one piece of news that’s evolved in the last [week],” he noted.


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