Australian policy makers should be ‘alert to the risk’ of a global recession, former RBA governor Glenn Stevens

Former RBA governor Glenn Stevens says Australian policy makers should be ‘alert to the risk’ of a global recession ahead of chairing Macquarie’s AGM.

Former RBA governor Glenn Stevens. Picture: Joel Carrett/NCA NewsWire

Former Reserve Bank governor Glenn Stevens says Australian policy makers should be “alert to the risk” of a global recession, as supply issues persist and central banks rapidly hike rates to tame inflation.

Mr Stevens, who is the chairman of Macquarie Group, was asked about the risk of recession at a media briefing ahead of Macquarie’s annual general meeting on Thursday.

“They do say, as (RBA governor) Phil Lowe has said, a narrow path to the fabled soft landing, the environment they (central banks) face is very difficult because supply-side developments have turned adverse over recent years,” Mr Stevens said.

“It will be hard and I think the truth is that we need to be alert to the risk of recession … I don‘t have any gratuitous advice for them.

“It’s a difficult path. But I think they’ll be highly alert to that fact, having studied their history and taking soundings on a high frequency basis from what’s going on in the economy.

“So a difficult task ahead and I think they‘re as well equipped as you could hope to meet it.”

Mr Stevens’ comments come after the US Federal Reserve this week raised rates by a further 0.75 percentage points to help curb bumper levels of inflation. In Australia, Reserve Bank has raised rates three times since April to 1.35 per cent, with the last two hikes being 0.50 percentage points apiece.

The Albanese government forecast on Thursday that inflation in Australia would peak at 7.75 per cent by December. It has been driven higher by war in Ukraine, ongoing supply constraints associated with Covid-19 locally and abroad, and devastating floods on the east coast.

The Australian Chamber of Commerce and Industry’s boss Andrew McKellar said Thursday’s economic address by Jim Chalmers should serve as a “wake up call” for the nation.

Mr McKellar added that strong economic headwinds suggested a grim outlook for the Australian economy, but also represented an opportunity for government to make bold, productivity-enhancing policy commitments.

“With inflation expected to continue climbing, higher interest rates to restore price stability, and more pessimistic growth forecasts, there is a clear risk of severe economic pain for businesses and for households,“ he said.

“The upcoming jobs and skills summit must be a catalyst for a bold agenda for workforce reskilling, migration, and bargaining reforms.“

Commonwealth Bank chief executive Matt Comyn said the treasurer’s moves to quell inflation were “sensible and appropriate”, and said the wouldn’t be distracted by short-term economic volatility.

Mr Comyn told The Australian further official rate rises were inevitable and the government and policy makers were rightly moving to slow price increases.

“Some of the comments he made I felt are very sensible and appropriate,” Mr Comyn said. ”Clearly on the horizon is further rate rises. Our economics team thinks the cash rate will be 2.6 per cent and the current spread to market is between 2.5 per cent and 3.5 per cent. There’s a lot of uncertainty there and there’s just a lot of determination appropriately to try and reduce inflation.

“We’re thinking long-term and we want to make better decisions for our customers to deliver better experiences over the long term.”

Macquarie’s economics team in June tipped an economic contraction was on the way for a string of global jurisdictions.

“We now expect several of the major advanced economies – including the US, UK, eurozone and Japan – to enter recession over the next 12-18 months, as strong inflation weighs on real incomes and sentiment, and as monetary policy moves from being highly accommodative to contractionary,” a report to clients said.

Separately, Mr Stevens noted the government’s review of the RBA was proceeding and how it was conducted would hinge on the capability of those appointed to undertake it.

The review is being conducted by Carolyn Wilkins, Bank of Canada’s former senior deputy governor, professor Renée Fry‑McKibbin and economist Dr Gordon de Brouwer.

Mr Stevens labelled the trio as “sensible people”, which suggests he has confidence in the process.

Asked by shareholders how Macquarie would navigate the tough economic backdrop, Mr Stevens said it was “well placed” given it had a diverse business units.

Additional reporting: Matt Bell