World Bank’s global warning

Aussie recession fears

THE World Bank has sent a grim warning that the global economy is close to falling into recession, with fears Australia may also be plunged into financial stress.

In a new report, the bank said rocketing cost of living, higher interest rates and disruptions caused by Russia’s invasion of Ukraine had led to the “fragile” economic conditions and could prompt a second recession within the space of just three years.

And while a mild recession in major economies such as the US, UK, Europe and Japan had been forecast by commentators for some time, few economists in Australia are forecasting a recession.

However, some warn there will be “difficult times” and households will be affected.

So where does Australia stand?

The Australian Reserve Bank forecasts the rate of inflation to fall to 4.7 per cent by the end of 2023, before easing further to just over its targeted 2 to 3 per cent by the end of the next year.

News Corp spoke to CommSec’s chief economist Craig James and Brodie Haupt, cofounder of digital lending platform WLTH, about what a recession would mean for Australia and what to expect.

A recession is generally when a country’s economy declines, according to the RBA website. Economists can’t label it a recession if the Australian stock market has one bad day – you need two successive quarters where Australia‘s gross domestic product (GDP) has fallen.

CommSec’s Mr James said it would be difficult to avoid a global recession.

“Slower growth is generally anticipated but much depends on inflation trends and interest rates,” he said.

“If inflation moderates quicker than assumed over 2023 then rates won’t need to rise as high as anticipated and economic activity can lift,” he said.

The World Economic Forum (WEF)’s Global Risks Report 2023 released this week found Australia would face greater risks around “rivalries for natural resources” as a worldwide demand-supply gap grows, particularly for finite critical metals and minerals of which the country is a global supplier.

The report predicts that by 2050, demand for graphite, lithium, and cobalt will soar to 450 per cent of 2018 production levels.

Mr Haupt, chief executive officer of WLTH, said it was “difficult” to say if a global recession is unavoidable, as economic conditions and events could change rapidly and unpredictably.

“Factors such as changes in government policies, natural disasters, and global events can all have a significant impact on the global economy,” he said.

“Many economies around the world, including Australia are experiencing a rise in interest rates for the first time in years, and there is usually a lag before the reduction in spending takes effect to reduce inflation.

“There are also many economic and political actions that governments and organisations can take to try to prevent or mitigate the effects of a recession. Governments can implement fiscal policies, such as increasing spending on infrastructure projects or providing financial assistance to individuals and businesses, to help boost economic activity,” he said.

While Mr James said there was a “low chance” of Australia falling into recession, Mr Haupt believed it was possible that Australia could experience a recession.

“Slower growth is generally anticipated but much depends on inflation trends and interest rates” CRAIG JAMES