Australia’s Recession Probability Eases to 35% Amid Policy Pause

Australia’s Recession Probability Eases to 35% Amid Policy Pause
&copy Bloomberg. Visitors gather outside the Sydney Opera House during New Year’s Eve celebrations in Sydney, Australia, on Friday, Dec. 31, 2021. Australia’s most populous state reported a 73% surge in new Covid-19 cases on Friday, an unwelcome spike that is casting a cloud on New Year festivities as authorities urge residents to still party on. Photographer: Brent Lewin/Bloomberg

(Bloomberg) — Australia’s chances of sliding into a recession have declined, according to a Bloomberg survey, as the Reserve Bank’s decision to pause an 11-month tightening cycle helps improve the economic outlook. 

The median estimate for a slump is 35%, down from 40% last month, the poll of 17 economists released Wednesday showed. Among respondents, AMP (OTC:) Capital Markets and Commonwealth Bank of Australia (OTC:) predicted a 35% chance. 

At the upper end of the spectrum, Nomura Holdings (NYSE:) Inc., Barrenjoey Markets Pty Ltd. and Credit Suisse Group AG put the risk at 60%. Westpac Banking (NYSE:) Corp, ANZ Group Holdings Ltd. and Goldman Sachs Group Inc (NYSE:). didn’t participate. 

The RBA kept borrowing costs unchanged this month after 10 consecutive hikes that lifted the cash rate to 3.6% from 0.1% last May. It’s trying to engineer a soft landing in the A$2.2 trillion ($1.5 trillion) economy by moving more cautiously in tackling inflation than some of its global counterparts.

Australia’s go-slow approach is aiding the local housing market, which is showing signs of stabilizing from persistent declines since early 2022. Consumer sentiment also picked up in April after the RBA’s pause, with financial markets pricing that Australia is all but done with rate hikes. 

The Bloomberg survey showed economists expect one more increase for a terminal rate of 3.85%.

Australia is likely to avoid recession “thanks to strong business investment, Chinese reopening and provided the RBA soon stops hiking,” AMP’s Shane Oliver said, referring to his base case. “Economic growth will still slow to a crawl this year though.”

A recession is defined locally as two consecutive quarters of declining gross domestic product.

©2023 Bloomberg L.P.


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