Are We Going Into a Recession? It Seems Likely But It’s Not All Bad News

recession australia 2022

For anyone who lived through the 2008 global financial crash, the idea of a recession is pretty terrifying. Now that the alarm bells are sounding, it’s looking increasingly likely that Australia, and the world, could be about to be plunged into another period of serious economic turbulence.

With the US Federal Reserve raising interest rates to their highest level in three decades to combat spiralling inflation, the economic analysts at Bloomberg are predicting that a recession is now 72% likely to happen, up from almost zero just a few months ago.

“When central bankers try this hard to slow the economy down,” Bloomberg journalists write in reference to the recent interest rate rises, “they often end up tipping it into outright reverse”.

If America tanks, what impact does that have on us? Well, as the world’s largest economy, quite a bit. Already, the Australian stock market has seen serious drops this week in response to the US interest rate hikes. This means savings, investments, and superannuation could be at risk.

In addition, our own Reserve Bank has raised interest rates from 0.15% to 0.85% in the past two months and further rate rises are expected, which some economists are predicting could go as high as 2.6% by the end of the year. Attempting to cut spending like this could result in similar economic outcomes as may be seen in the US.

Granted, the US economy is quite different to the Australian one, and their inflation rate is much higher than our own. So, there are hopes that Australia could avoid a recession. The export market for iron ore and gas remains high while our unemployment rate is low which should give us some good protection. In addition, rising wages will also help protect everyday people if the global economy does sink.

We’re also in fairly safe hands under the current administration. The last time we had a global financial crisis, Australia came out of it pretty well. We spent loads of money keeping people afloat and, as a consequence, we didn’t go through the decade or more of savage austerity measures that places like the UK experienced. And the government in power last time? Labor.

In fact, our current Treasurer, Jim Chalmers, was an advisor to Treasurer Wayne Swan in Kevin Rudd’s government the last time the financial world went into meltdown. Chalmers is keeping a very close eye on the situation in the US and presently working to slash overspending and election-focused economic policies set out by the previous government in the last budget.

So, how likely is a recession? For the US, it looks all but guaranteed. Australia however does have a history of dodging global financial meltdowns, so even if the US goes, taking much of the global economy with it, it’s likely that Australia will still pull through okay.

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