Fears mount over per-capita recession in Australia as banks downgrade economic forecasts

The big four banks have downgraded their economic forecast as the cost of living crisis continues to hit families hard.

Fears are mounting Australia could slip into a per-capita recession as the big four banks taper expectations for the year ahead.

NAB, ANZ, Commonwealth Bank, and Westpac have all downgraded their economic forecasts as rates rises continue to hit families hard.

Although the four still project growth will continue – avoiding a full-blown recession – that growth is forecast to be much smaller.

Westpac chief economist Bill Evans told Nine News the bank had lowered its growth forecast for 2023 from one per cent to just 0.6 per cent.

“The key driver of this insipid growth outlook is household consumption which we now expect to grow by just 0.3 per cent in 2023 and 0.6 per cent in 2024,” Mr Evans said.

“This consumption profile is consistent with the very weak measures of consumer sentiment we have seen since the onset of high inflation and rising interest rates in 2022.”

Commonwealth Bank’s forecast was even bleaker with growth of 0.7 per cent toward the end of 2023 resulting in a per-capita recession – where the country experiences two quarters of negative growth in GDP.

The big four banks have downgraded their economic forecast as the cost of living crisis continues to hit families hard. Picture: NCA NewsWire / Gaye Gerard

“Broadly flat real household consumption over the remainder of 2023 sits at the heart of our forecasts for the economy to grow significantly below trend and be in a per‑capita recession for the remainder of this year,” according to a Commbank spokesperson.

“We put the odds of a recession in 2023 at 50 per cent, as the lagged impact of the RBA’s rate increases continues to drain the cash flow.”

Commbank’s economics team said they now expect one further 25bp increase by the RBA in August to a peak rate of 4.35 per cent – with a potential additional rise in July.

For its part, the RBA revealed in a statement last month it forecast GDP to rise by 1.5 per cent in the second half of 2023 and remain the same in 2024, before it again hiked the cash rate in June to 4.1 per cent – the highest it has been in 11 years.

RBA Governor Philip Lowe revealed yet another rate rise at the start of June Picture: Martin Ollman

Last week, New Zealand announced it had entered a per capita recession after the country experienced two quarters of negative growth.

At the end of last year, GDP was down 0.7 per cent in New Zealand.

In quarter one of this year, it fell 0.1 per cent.

Unlike Australia, New Zealand’s Reserve Bank has been raising interest rates since late-2021.

In September 2021, the cash rate was 0.25 per cent — at the time, Australia’s was 0.25 per cent – and has since risen to 5.5 per cent.

But, unlike its Australian counterpart the RBNZ has indicated it does not plan any further rate rises.

Originally published as Fears mount over per-capita recession in Australia as banks downgrade economic forecasts