Recession fears rise as growth slows, but many already there

The economy is shrinking per person, although official statistics show Australia has so far escaped recession. That may change.

Weaker-than-expected economic figures released last week highlighted what millions of Australians are already feeling: recession vibes.

The GDP numbers from the Australian Bureau of Statistics show that while we are not technically in a recession – which is two quarters of negative economic growth – it’s a recession per person, or per capita, as economists say.

And the only reason a full recession hasn’t hit us yet is the huge population growth of the past two years that has propped up demand for goods and services.

That’s not to say we won’t be in a full recession in 2024. The latest GDP data put annual growth at 2.1 per cent, and AMP says it is likely to end the year below 1.5 per cent.

CBA Economics says GDP growth for the six months to September 30 slumped to 1.3 per cent, while population growth is up about 2.5 per cent annually. “The upshot is that the economy has gone backwards a lot in per capita terms over the past six months,” it says.

The biggest reason for the weakness is the 13 Reserve Bank interest rate rises over the past 18 months, which have slashed cash reserves in many households and businesses.

The RBA raised rates to tame soaring inflation, and the latest CPI figures suggest its efforts appear successful – but the cost could be a recession.

For many of the mortgage holders who have suffered a 50 per cent rise in repayments, shoppers and renters who have faced surging costs, or businesses trying to grow as customers dry up, it already feels that way.

Australia could sink into full recession early in 2025, not just a per capita one. Picture: iStock

A new Consumer Pulse report by Canstar says just 17 per cent of people felt some relief from cost-of-living pressures this year, and grocery prices are their biggest concern for 2024, ahead of housing costs.

Canstar’s Steve Mickenbecker says “recession mentality has snuck into the Aussie psyche”.

“Aussies are saving less than they have been able to in previous years as cost pressures decimate the ability to put money aside,” he says.

“The main item or expense currently being saved for is in fact living costs, followed by a rainy-day fund.”

They’re not fun savings goals when compared with a holiday or new car, but that’s the harsh reality in a nation where the economy is effectively shrinking.

Recession worries are not just in Australia. Many forecasters believe the US is heading for at least a mild recession in 2024 after hefty interest rate rises there.

The bottom line is that economic data is just data. It’s not the real-life situation, fears and worries experienced by people who are trying to get by financially.

Whether we tip into a recession next year, or whether this per-capita recession continues, it’s wise to check your personal finances and look for areas where costs can be cut – now if possible, but also in the future if things get tougher.

There is a silver lining to this talk of recession. Interest rate cuts for homeowners may come sooner than expected.

A couple of weeks ago many economists thought there was little chance of RBA rate cuts until very late next year.

Today, the “sub-par GDP” numbers have prompted money markets to pull forward the first RBA rate cut from November to August, says IG market analyst Tony Sycamore.

“There is now a total of 40 basis points (0.4 per cent) of RBA rate cuts priced in the Australian rates market for 2024,” he says.

Originally published as Recession fears rise as growth slows, but many already there