Today Dr Andrew Wilson and I will be addressing all the talk about Australia falling into a recession.
We will share the latest immigration statistics which show Australia increased its population by almost half a million people in 2022, and we'll explain what the latest unemployment figures suggest is ahead for our economy and interest rates.
Dr Wilson will also discuss the current economic landscape and shed some light on the potential outcomes for our economy and housing markets.
Technically, a recession is two-quarters of negative GDP - in other words, six months of negative economic growth.
As you'll hear in my chat with Andrew Wilson, we both lived through the recession of the early 90s when unemployment rose to 10%.
That was a terrible time and people couldn't keep up their mortgage payments.
You may have also heard about the concept of a per capita recession.
This situation is where the average economic output per person in a country decreases.
This can occur even if the overall GDP of the country is still growing if the population is growing at a faster rate than the GDP.
A per capita recession can still represent a significant economic slowdown and can be associated with a decrease in living standards or economic hardship for individuals.
I think having half a million new Australians spending up as they form new households will prevent the economy from falling into a technical recession, but I believe it's quite possible we will slip into a per-capita recession.
The problem is Reserve Bank governor Philip Lowe is engaged in a conventional central bank-style solution to bringing inflation under control, by raising interest rates.
Our economy is slowing, but holding up well, however, inflation remains high.
Consider some facts:
- 12 interest rate rises in 12 months is the fastest monetary tightening ever.
- Interest rate policy works but with a long lag.
- Most other economic indicators suggest that our economy is slowing.
- Central bankers aren’t great at picking the right interest rate needed to beat inflation and avoid a recession. Right now, we have economic readings that say our economy is under pressure as the following shows:
- Consumer sentiment is low.
- Business confidence is low.
- March economic growth was only 0.2%, which annualizes at 0.8%, which is historically very low for Australia.
- The last actual monthly CPI reading was a low 0.3% but the 6.8% annual figure had a lot of statistical problems.
Last year many of the major banks and several economists suggested our housing market could fall between 15 and 25%, but I think that’s unlikely.
- House prices don't fall when there is a severe undersupply of housing stock.
- House prices don't fall when vacancy rates are less than 1% and rents are skyrocketing.
- House prices don't fall when the unemployment rate is 3.5 % meaning anyone who wants a job can have a job and will be able to pay for their mortgage.
- House prices don't fall when auction clearance rates remain above 70% and they've remained about 70% since March of this year.
However, it is likely the extra half a million people who called Australia home in 2022 will underpin our economic growth and ease some of the tight jobs market and the sheer weight of their numbers could offset the negative impact of Australians spending less as interest rates bite.
- Australia grew by 1,361 people a day in 2022.
- This is the fastest population growth in more than 13 years.
- It’s a 1.9 per cent increase.
- This growth was driven by the nation’s single-largest annual intake of migrants.
- That’s the equivalent of adding more than one Canberra to Australia last year, but we're not building enough accommodation for them.
- There have been 12 interest rate rises, stubbornly high inflation, wage decisions that risk a wage-price spiral, and new economic data suggesting Australia’s economic growth has all but come to a standstill.
- This has had many economists worried about the prospect of a recession later this year or early next.
- However, it is likely the extra half a million people who called Australia home in 2022 will underpin economic growth and ease some of the tight jobs market which could offset the negative impact of Australians spending less.
- On the other hand, their increased demand for goods and services may also help push up inflation further which will only lead to more interest rate rises.
- The housing supply-demand equation continues to tighten which will keep our property prices and rents rising.
- The May unemployment figures fell back to 3.6%
- That means we created 76,000 jobs over the month.
- The number of unemployed people in Australia was down by 18,000 over May.
- And the participation rate also bounced back to 66.9%
- Most states report very low-level unemployment rates.
- National quarterly house building costs increased over April and remain significantly higher compared to the same period last year.
- The rate of annual growth of national quarterly house-building costs again eased marginally over April.
- Weekend auction markets generally bounced back following the distractions of the previous weekend’s holiday break, with positive results for most sellers.
- The booming Sydney market produced another clearance rate above 80%.
- Sydney had the strongest auction clearance rate of 81.9%.
- Auction clearance results for the other capitals were:
- Melbourne 75.4%
- Adelaide - 75%
- Brisbane - 68%
- Canberra - 58.4%.
- The national auction market reported a robust clearance rate of 71.7% which was higher than the 69.7% reported over the previous holiday weekend.
- Also higher than the 62.7% recorded over the same weekend last year.
Links and Resources:
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Some of our favorite quotes from the show:
“With the current levels of low unemployment, a technical recession isn’t going to affect the average Aussie like previous recessions.” – Michael Yardney
“An opportunity to get set at the beginning of a property cycle doesn’t happen very often.” – Michael Yardney
“We all get out of life what we tolerate.” – Michael Yardney
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