Will Australia Go Into A Recession In 2024?

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If you’re one of many Australians affected by higher interest rates and high inflation — with income growth that’s well short of the rising cost of living — you might feel that we’re definitely in the midst of a widespread downturn in the economy.

While there are no conclusive diagnostic criteria for determining when Australia’s economy is in recession, there are guiding indicators.

Let’s explore what a recession means and how Australia’s economy is performing in 2024.

Key Takeaways:
Australia faces a ‘per capita’ recession influenced by inflationary pressure and rising immigration levels.
Globally, advanced economies continue to face recession as they fight to curb inflation — which poses additional risk to Australia.
Revised forecasts from the RBA indicate unemployment will rise, but our GDP growth will remain positive.

What Does A ‘Technical’ Recession Mean?

If a country’s economy experiences weak or negative growth for six consecutive months, some economists would call it a technical recession.

Above: Economic growth has cooled sharply after the RBA hit the brakes.

The sustained drop in economic growth is measured by the change in gross domestic product (GDP) produced by a country, adjusted for inflation (also known as real GDP).

Reduced production is an important indicator — but many global economists also take into account factors including:

In Australia, a prolonged decline in GDP combined with a substantial increase in unemployment is generally agreed to signal a recession.

Above: The economy contracts and recovers as part of a normal business cycle. The central bank will adopt a loose monetary policy to prevent a significant decline in economic growth.

This occurs when the business cycle contracts from a peak of economic activity and high prices, leading to less consumer demand and businesses trimming their staff levels.

(Related: Interest Rate Forecast: When Will RBA Cut Rates?

Will High Interest Rates Lead To A Recession?

A number of countries have experienced recession or are on the brink due to the slow economic recovery from the COVID-19 pandemic.

Many central banks committed to raising interest rates to stifle inflation — and policy easing — only commenced in mid-2024. Questions are arising about whether central banks have left rates too high for too long.

For instance:

Market turmoil and fears of a rapidly cooling labour market in the US prompted the Federal Reserve to deliver a much-anticipated rate cut at its September meeting — with an aggressive 0.5% reduction. 

However, subsequent jobs data indicated employment growth and most pundits believe a soft landing for the US economy is on track. The OECD thinks the US will avoid recession:

AMP’s head of investment strategy, Dr Shane Oliver, said the US economy’s perceived resilience to date could have been due to the lags in monetary policy having an impact.  

Oliver said the leading indicators in economic growth in Australia have not been as weak as the US, but that local recession risk is still 50%.

Compared to many major economies, Australia didn’t raise rates as high.

The current 4.35% was thought to be its peak. Higher than expected March quarter inflation numbers raised the spectre of cash rate rises — concerns that were quelled somewhat by June quarter CPI being in line with forecasts.

Then August’s monthly CPI data revealed a sharp decline in inflation. But the RBA still didn’t follow global counterparts and initiate a rate cutting cycle in September.

In response, many economists have pushed back the timing of the first cash rate cut in Australia, from somewhere in late 2024 into 2025.

How Does Global Instability Impact Australia's Economy?

A contraction in economic activity domestically is also heavily contingent on how our major trading partners fare — particularly the US and China.

The better-than-expected jobs data out of the US means the Fed may be more cautious about rate cuts moving forward.

Especially given the latest Personal Consumption Expenditures Price Index (PCE) showed a 2.2% annual rise in prices paid by consumers, compared to 2.5% in July. PCE is the Fed’s preferred inflation gauge.

Now, US markets imply  a 0.25% cut at each of the Fed’s remaining meetings in 2024 and well into 2025, until the policy rate hits the 3.50%-3.75% range by mid-2025.

Above: Slower economic growth and still-firm inflation disappointed the US stock and bond markets, dampening soft-landing hopes.

JP Morgan’s Chief Global Strategist, Dr David Kelly,  said large policy rate cuts can be “nerve-racking” because people can get scared, which slows down the economy.

But he thinks the positive data seen since the Fed’s decision bodes well for a US soft landing, and the central bank will stick to its forecast of 150 basis points in cuts to the end of 2025, despite futures markets pricing in more:

The performance of the US and Chinese economies also acts as a lever for the value of the Australian dollar.

When the AUD’s purchasing power is reduced, it can further weaken economic conditions.

What Is Australia's Current Rate Of Economic Growth?

Australian National Accounts figures released by the Australian Bureau of Statistics (ABS) for the June quarter of 2024 show that real GDP rose 0.2% for the quarter and 1.0% over the year.

Quarterly changes in the GDP from mid-2022 and throughout 2023 have been in the positive territory.

	Dec 22 - March 23	March 23 - June 23	June 23 - Sept 23	Sept 23 - Dec 23	Dec 23 -March 24	March 24 - June 24	Annual (June 23- June 24)
GDP	0.6	0.5	0.3	0.2	0.2	0.2	1.0
GDP Per Capita	N/A	-0.1	-0.4	-0.3	-0.4	-0.4	-1.5

However, when we look at the GDP per capita, which better reflects economic output in relation to our nation’s population — it’s clearly been moving into the negative.

That’s led several commentators to posit that Australia is currently in a ‘per capita’ recession.

What Is A ‘Per Capita’ Recession?

The average GDP per Australian resident has been decreasing since mid-2023. That means each individuals’ living standards are getting worse.

GDP per capita is a helpful measure because the overall GDP doesn’t account for how increased population — such as Australia’s recent uptick in immigration — influences how evenly national income is spread across households or communities.

So, while economic growth at the national level isn’t going backwards (yet), times are tough for many families.

How Migration Can Fuel Negative Growth.

ABS data on overseas migration into Australia for the 2022-23 financial year shows a net gain of 518,000 people. There was a 73% increase in migrant arrivals from the year prior.

ABS figures released in September 2024 show the net overseas migration in the 12 months to March this year was 509,800 people.

Population growth is a double-edged sword. It can be critical for filling skill shortages that boost economic activity, but it also increases demand, which puts pressure on the price of housing and other goods and services.  

Evidence Of Australia’s ‘Per Capita’ Recession.

There are clear signs of this ‘hidden’ recession, most notably in the way we’re using our household income as finances get tight.

According to the Westpac-Melbourne Institute Index of Consumer Sentiment, in October 2024, consumer pessimism still dominates but consumers no longer fear the RBA will hike rates.

The wage price index saw an increase, but it didn’t compensate for inflation’s dampening of Aussies’ purchasing power.

You’ll have noticed that more of your pay-cheque is needed to cover essential items like rent, mortgage repayments, groceries, utilities, bills, insurance, healthcare, and fuel.

Above: Australians are still struggling to save.

Is Australia’s Quality Of Life In Decline?

With wages not keeping pace with inflation, less disposable income and less ability to tuck away savings, life has become much harder for many Aussies.

Research from market research firm Roy Morgan shows that 29.5% of Australians were at risk of ‘mortgage stress’ in the three months to August 2024.

It’s becoming a major health issue, too.

People are struggling to pay for healthy food and healthcare, and many people are highly stressed and yet forced to work more to earn more.

Everyone at the margins is being squeezed.

Australian businesses, especially consumer-facing ones, are also feeling the brunt of inflation.

NAB’s monthly survey of businesses in September showed confidence rose from the month prior but was in the negative territory and below average. 

Margins are still under pressure despite easing conditions. The survey found that both business costs and purchase cost growth remain elevated:

Small and micro business owners are in trouble.

In a recent submission to Fair Work Australia regarding wages, the founder of Entrepreneurial & Small Business Women Australia, Amanda Rose, said:

Is Australia Going Into A Recession?

Pessimism about a recession is high among Australians.

The Dye & Durham Australian Market Pulse survey  released in August 2024, which involved more than 1,600 people, found almost two-thirds believe Australia will enter a recession in the next year.

The prediction for 2024 is for below trend but still positive economic growth and an RBA rate-cutting cycle that will start in the first quarter of 2025 as inflation starts easing.

A strong rise in unemployment — typically associated with a recession — is not foreseen.

Key forecasts from the RBA out to December 2024 include:

Domestic demand looked to be cooling earlier in 2024, with retail sales falling by 0.4% in March 2024. But it rose in April, May and June and was up 0.7% month-on-month in August.

Judo Bank's Chief Economic Advisor Warren Hogan is a prominent economist flagging that rate hikes are needed  to get our economy “on the right path”:

A panel of experts surveyed by Finder in September said there was a 39% chance of Australia going into recession in the next 12 months.

In August 2023, ANZ’s chief economist Richard Yetsenga said that in the unlikely event that Australia went into recession, it would be relatively brief and mild.

He also argues that the RBA has “plenty of firepower” to cut rates significantly from its current position of over 4% if inflation doesn’t start easing and unexpected economic weakness occurs.

Of course, if the US did slide into recession, it could hamper global growth — the ripple effects on demand for our exports would impact growth in Australia too.

How long will Australia’s ‘per capita’ recession last?

Westpac economist Ryan Wells said the bank anticipated a slowing in net migration, with an annual change of 1.9% in 2024.

Wells said:

How Did Australia Fare In Past Recessions?

Recessions vary in severity and duration. How sharply growth slides and for how long depends on the impetus for the decline and how policy-makers respond.

Since then, Australia has seen one of the longest stretches of economic growth in modern history.

Australia’s strong population growth, supported through migration, has been an important reason for the nation’s continued growth throughout various ups and downs in global conditions.

Global Financial Crisis Put A Handbrake On Economic Growth.

Many economies worldwide went into recession during the Global Financial Crisis (GFC).

Growth slowed in Australia, unemployment reached 5.75%, the Aussie dollar lost value, and equity prices declined sharply to reduce the wealth of Australian households by nearly 10% by March 2009.

Covid Pandemic Strained The Australian Economy.

More recently, the COVID-19 pandemic triggered one of the worst ever global recessions, as lockdowns and travel bans stymied growth and led to significant job losses in most advanced economies.

However, the economy rebounded in the third quarter of 2020, with GDP increasing by 3.3% as restrictions eased and government stimulus funding had an impact on people’s spending.

The rebound effect post-COVID is one of the reasons cited for rising inflation, which has gripped the Australian economy (and numerous other economies globally) ever since.

(Related: AUD To Euro Forecast: More Surprises Ahead?)

What Happens If Australia Goes Into A Recession?

The word recession seems synonymous with ‘bad times,’ but at best, it’s an approximation of economic health.

When the economy stalls and starts to move backwards, we expect business profits to shrink and lots of people start losing their jobs.

However, while our GDP growth and unemployment numbers may not indicate a significant and lasting reduction in economic activity — it’s clear that for many Aussies, living standards are in decline and there’s no immediate sign of relief. 

Jody