Recession alert from former RBA governor

FORMER Reserve Bank governor Glenn Stevens says Australian policymakers should be “alert to the risk” of a global recession, as supply issues persist and central banks rapidly hike rates to tame inflation.

Mr Stevens, the chairman of Macquarie Group, was asked about the risk of recession at a media briefing ahead of Macquarie’s annual general meeting on Thursday.

“They do say, as (RBA governor) Phil Lowe has said, a narrow path to the fabled soft landing, the environment they (central banks) face is very difficult because supply-side developments have turned adverse over recent years,” Mr Stevens said.

“It will be hard and I think the truth is that we need to be alert to the risk of recession … I don’t have any gratuitous advice for them.

“It’s a difficult path. But I think they’ll be highly alert to that fact, having studied their history and taking soundings on a high frequency basis from what’s going on in the economy. So a difficult task ahead and I think they’re as well equipped as you could hope to meet it.”

Mr Stevens’ comments come after the US Federal Reserve this week raised rates by a further 0.75 percentage points to help curb bumper levels of inflation. In Australia, the Reserve Bank has raised rates three times since April to 1.35 per cent, with the last two hikes being 0.50 percentage points apiece.

The Albanese Government forecast on Thursday that inflation in Australia would peak at 7.75 per cent by December. It has been driven higher by war in Ukraine, ongoing supply constraints associated with Covid-19 locally and abroad, and devastating floods on the east coast.

The Australian Chamber of Commerce and Industry’s boss Andrew Mckellar said strong economic headwinds suggested a grim outlook for the Australian economy, but also represented an opportunity for government to make bold, productivity-enhancing policy commitments.

“With inflation expected to continue climbing, higher interest rates to restore price stability, and more pessimistic growth forecasts, there is a clear risk of severe economic pain for businesses and for households,“he said. “The upcoming jobs and skills summit must be a catalyst for a bold agenda for workforce reskilling, migration and bargaining reforms.”

Commonwealth Bank chief Matt Comyn said further official rate rises were inevitable and the government and regulators were rightly moving to slow price increases.

“Our economics team thinks the cash rate will be 2.6 per cent and the current spread to market is between 2.5 per cent and 3.5 per cent.”