After six straight hikes, how the Reserve Bank manages the cash rate over the next few months will be a “key” deciding factor, AMP chief economist Shane Oliver said.
Oliver estimated the chances of Australia falling into a recession had gone up from 30 per cent to 40 per cent.
“I don’t think it’s inevitable,” Oliver told Today Extra.
“I think we can avoid it but it will be a close call.”
A recession would result in sweeping job losses, causing a major slowdown in economic activity, he said.
Higher unemployment would amplify cost of living rises, spiking rents and mortgage repayments and looming increases to energy bills.
“Australian households are going into tougher times,” Oliver said.
“The pressure is on the Federal Government to wind back spending a little bit to try to take pressure off inflation, which will take pressure off the Reserve Bank.”
In the face of global recession fears and China’s zero-tolerance policy towards COVID-19 cases, the Australian dollar hit a 2.5-year low yesterday.
Experts predict the dollar could fall below US62 cents this week.
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Oliver described the economic situation in Europe and the UK as “dire”.
“Now we are seeing uncertainty (and) potential bad times, and that is putting downwards pressure on the Aussie dollar,” Oliver said.
The Aussie dollar would likely continue to drop in the short-term, he added.
A sliding dollar is good news for exporters but not for Aussies travelling overseas.
Wall Street has been spooked in recent days after JPMorgan Chase warned the US is likely to enter a recession within the next six to nine months.
US stocks have tumbled this year due to worries about inflation and the Federal Reserve’s aggressive interest rate hikes to fight surging prices.
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With agencies
