Australia recession fears: Top economist Shane Oliver warns another rate hike by the Reserve Bank will be a ‘tipping point’ for the country

Leading economists predict Australia could slide into recession if the Reserve Bank raises rates again.

The central bank has hiked cash rates 12 times since May 2022 to an 11-year high of 4.1 percent — the most aggressive pace since 1989.

The futures market sees a rate hike on Tuesday as an eight percent chance.

However, the banks and economists are predicting another hike sometime before the end of the year in an effort to curb inflation.

Although it fell to six per cent in June, it still remains well above the Reserve of Australia’s target of two to three per cent.

Experts such as AMP chief economist Shane Oliver have warned that another rise could mark a tipping point for the country.

“We now have a 50 percent chance of going into a recession,” said Dr. Oliver v Daily Mail Australia.

“But we’re not there yet, it’s always possible that the Reserve Bank will hold the course.”

‘But the more interest rates rise, the greater the chance of a recession.’

The top economist explained that the household sector was a major factor contributing to the risk of a recession due to debt levels.

He described the forecast that Australia is headed for recession as a ‘close call’.

When asked if more government intervention was needed, Mr Oliver replied: ‘There is an argument that government could intervene.’

“There are several things the government could do, but they are not popular, so it falls to the Reserve Bank,” he said.

HSBC Australia chief economist Paul Bloxham said it was almost certain that the central bank will raise rates again as inflation was still too high.

“Overall, we see the RBA as nearing the end of its hiking phase, but will likely deliver another rise that we expect in August,” he told the The Sydney Morning Herald.

Independent economist Saul Eslake was less likely to believe a recession was imminent given the most recent data.

“It’s possible, you can’t rule it out,” he told Daily Mail Australia. “I’d say it’s a relatively slim chance.”

Mr Eslake pointed to factors such as population growth, economic comparisons with other countries such as the US – which have a higher cash rate but are not in recession – as reasons why a recession could not materialize.

He also referred to the turnaround in consumer confidence, the pick-up in the real estate market and the decline in retail sales.

‘We’re not that far yet. It is always possible that the Reserve Bank will hold rates,” he added.

“At this stage knowing what we know, I don’t think it (a recession) is likely.”

A recession in 2023 or 2024 would be Australia’s first triggered by higher interest rates since 1991.

Of the big four banks, the Commonwealth Bank, Westpac and NAB predict another rate hike on Tuesday, while ANZ does not.

The Commonwealth Bank and Westpac both forecast an increase of 0.25 percentage point on August 1, which would bring the spot rate to 4.35 percent.

If their predictions come true, this would be the Reserve Bank of Australia’s 13th rate hike in 15 months.

A borrower with an average of $600,000 would see their monthly repayments increase by another $99 — or at an annual rate of $18,744 in just 15 months.

It means repayments would have increased 67.7 percent in 13 months, with borrowers paying $1,562 more than just over a year ago.

Annual repayments would also be $18,744 higher than at the start of 2022.

Commonwealth Bank and Westpac forecasts come despite inflation falling to 6 percent in June, down from an annual rate of 7 percent in the March quarter and a 32-year high of 7.8 percent at the end of 2022 .

The Reserve Bank sees unemployment, now at its lowest level in 48 years of 3.5 percent, rise to 4.5 percent by the end of next year – a level it considers to be the highest non-accelerating inflationary unemployment.

Tuesday’s Reserve Bank board meeting is Governor Philip Lowe’s penultimate before his seven-year term expires on Sept. 17.