Australia’s economy is ‘a heartbeat away from recession’

Australia’s sharp economic slowdown over the past six months has put the nation ‘a heartbeat away from a recession’.

The economy may have flatlined over the first three months of the year. Picture: Getty Images

Australia’s sharp economic slowdown over the past six months has put the nation “a heartbeat away from a recession”, as analysts warned growth in the year to March likely plunged to its weakest level in more than three decades outside the pandemic.

KPMG chief economist Brendan Rynne made the comments following a series of data releases on trade, business profits and government spending on Tuesday that confirmed the economy had virtually stalled for a second straight quarter.

“The domestic economy has barely grown over the past six months,” Dr Rynne said, forecasting “barely positive” growth of 0.1 per cent through the first three months of the year.

“In normal circumstances this weakness in economic conditions would induce the RBA to adopt loose monetary policy settings to stimulate activity. However, with inflation still sticky and showing this ‘last mile’ down to the target band is a much harder road, KPMG expects the RBA to still sit on its hands for at least ­another quarter until the trajectory of headline and core inflation becomes clearer,” he said.

Analysts at the ANZ downgraded their forecast quarterly growth in real GDP from 0.3 per cent to zero, after the Australian Bureau of Statistics on Tuesday said a jump in imports over the three months would drag growth down by an unexpectedly large 0.9 percentage points.

A flat or barely positive quarter for the economy would leave annual growth at 1 per cent to 1.1 per cent and its lowest in over three decades.

CBA economist Stephen Wu estimated real GDP grew by just 0.1 per cent at the start of the year, and that, accounting for population growth of 0.6 per cent, suggested five quarters of flat or falling economic growth in per capita terms – a better measure of living standards.

“The key themes for the economy remain unchanged. The household sector, more than half of the economy, continues to ­remain weak and is driving this period of below-trend economic growth,” Mr Wu said.

Jim Chalmers in question time said the slowdown justified the May budget pivot from fighting inflation and towards supporting growth.

“Our strategy is about putting downward pressure on inflation without crunching the economy,” the Treasurer said.

“It’s all about turning Liberal deficits into Labor surpluses, getting debt down and paying less interest on the debt. It’s all about investing in the industries which will power a Future Made in Australia. And it’s all about tax cuts and energy bill relief and cost-of- living help designed to ease the pressures that people are under,” Dr Chalmers said.

The Treasurer’s comments came as Productivity Commission chairwoman Danielle Wood repeated her warning that “there are costs as well as potential benefits associated” with Future Made in Australia.

Appearing at her first Senate estimate hearing since being appointed to the top job in November, Ms Wood said the PC had not conducted – or been asked to undertake – a deep analysis of Labor’s flagship industry policy, but repeated earlier comments that such subsidies risked propping up uncompetitive industries over the longer term.