Think of Australia’s $2.2 trillion economy. Now flip a coin.

According to a leading economist, that is the 50 per cent risk the Australian economy falls into a damaging recession at some time in the next year, following 12 punishing rate hikes which have so far failed to substantially rein in inflation.

Millions of households are this morning trying to work out how they will afford their mortgage repayments after the Reserve Bank’s decision to again lift rates yesterday.

Reserve Bank of Australia building in Martin Place in Sydney
The RBA has signalling that even more rises might be needed to rein in inflation. (Photo by Brook Mitchell / Getty Images)

Following Tuesday’s hike, borrowers with a $500,000 home loan must find an extra $76 each month, and their monthly repayments have increased by $1100 in just over a year.

The World Bank has declared the global economy is in a precarious state, and AMP’s deputy chief economist Diana Mousina warns a confluence of local factors has left Australia staring down the barrel at a recession.

“There are already increasing signs that the economy is weakening,” she said, amid a gloomy backdrop that has the official cash rate sitting at 4.1 per cent, compared to just 0.1 per cent in April last year.

Despite RBA forecasts, Mousina said the rocketing interest rates means it is becoming much harder for the economy to remain on an “even keel”.

She said the series of hikes “runs the real risk of tipping the economy into a recession, which we assign a 50 per cent risk to in the next 12 months”.

High density housing in Sydney, Australia
Some economists warn the RBA rate hikes are ramping up the risk of a recession. (Photo by Ian Waldie / Getty Images)

Retail sales have slowed, the unemployment rate is rising and building construction has hit turbulence.

The decision to lift rates yesterday appears to have been driven by the uptick in the April consumer inflation data which lifted to 6.8 per cent, from 6.3 per cent.

”The impact of rate hikes is very unequal,” she said.

“All of the burden from higher interest rates (is) being placed on indebted Australian households,” she said, which amounts to around one in three families.

Aussie suburb sees rent prices shoot up $32,500 in 12 months

It would also put further upward pressure on rents, she said.
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