Recession fears loom for business

Economists say interest rate hikes will need to go even higher to ensure inflation expectations remain under control after 18 months of soaring prices.

Qantas CEO Alan Joyce. Picture: Russell Shakespeare

Business is on guard against the threat of a recession as cost-of-­living pressures fed by high inflation and elevated interest rates raise the risk of a further economic slowdown.

Building materials supplier CSR said the company was keeping a close eye on any signs of a slowdown in the housing market.

“There’s a debate about whether there’ll be an ‘R’ occurring in our timeframe soon – the dreaded recession,” CSR chairman John Gillam said.

“But the reality is there is a quite a range of forecasts for Australia at the moment and we’re running our business in a way where we are closely monitoring the market dynamics so that we maximise the opportunities we can get today whilst being prepared for anything that could occur.”

A series of profit warnings from retail-focused companies has seen analysts suggest a tipping point has been reached and a downturn in consumer spending is set to accelerate, with the chance of a recession this year jumping to 50 per cent.

Economists say interest rate hikes will need to go even higher to ensure inflation expectations remain under control after 18 months of soaring prices.

Australia Post chief executive Paul Graham is seeing pockets of weakness in his parcels delivery volumes as a tougher economy forces consumers to rein in their online shopping. Shoppers were also trading down and trying to “spread that dollar further” when they jumped online as they hunted for discounts, he said.

And while he still strongly believed in the long-term future of e-commerce, the nation’s mortgage belt was reacting to higher interest rates by being more cautious when clicking on “buy”.

KFC and Taco Bell operator Collins Foods chief executive Drew O’Malley said the peaks of crushing inflationary pressures on his fast-food chains were mostly behind him, although there were still “considerable headwinds” coming from areas such as wages and energy.

He said it was crucial for the fast-food chain operator to defend its “value credentials” at a time when the Australian economy could dip into recession.

“We absolutely believe when you look at one of the benefits of the quick service restaurant industry, it is resiliency. Generally in good times and bad, people find this an affordable treat; we want that to continue to be the case.

“So 12 straight interest rate rises means 12 straight letters from your bank telling you your mortgage is going up, and we’re very sensitive to that for consumers,” Mr O’Malley said.

Still, Qantas said travel demand was showing no sign of being dampened by cost-of-living pressures as the airline gears up for a busy school holiday period.

More than four million passengers will be carried by Qantas and Jetstar between now and late July, as people “prioritised travel” over other spending in their ­budget.

Top winter destinations included tropical Cairns and the Gold Coast, while Qantas was also seeing a strong take-up of international seats to Rome and New York.

Qantas CEO Alan Joyce said airfares were lower than they were a year ago and were likely to fall a bit further as supply caught up with demand.

“The big impact on fares was the mismatch between supply and demand and what airlines all around the world have been doing is trying to get their aircraft back in the air,” Mr Joyce said.

“We’re over 100 per cent of domestic capacity and as a result fares are normalising domestically, and we’ve still got a bit of work to do to get there internationally.”