Source: Bloomberg —
Reserve Bank of Australia chief Philip Lowe’s expectation of further interest-rate rises ahead has prompted economists and money markets to narrow the odds of a recession in the $1.5 trillion economy.
There is now a better than one-in-three chance of a slump over the next 12 months, a Bloomberg survey showed, up from one-in-four late last year when Lowe signaled a rate pause was in the offing. In the US, by contrast, recession probability has begun to come down.
The turnaround follows a jump in inflation that unnerved the RBA, prompting a hawkish pivot and for traders to price in four more hikes. That’s one more rate increase than is currently expected for the Federal Reserve.
The following charts set out the gloomier picture unfolding Down Under.
The RBA embarked on its tightening cycle in May — two months after the Fed — and then moved at a more cautious pace. Lowe argued Australia was different to global peers and inflation would ease as supply chains disentangled. The RBA was aiming, the governor said, to bring the economy in for a soft landing.
But then inflation soared to a 32-year high in the final three months of 2022 as prices were buttressed by strong domestic demand. Lowe’s message adjusted as he acknowledged Australia had the same challenges as the rest of the world. In February, he raised rates and delivered a hawkish message — surprising markets after the RBA had considered a pause in December.
