Barefoot investor Scott Pape has warned that a massive global economic downturn will hit Australia next year.
Mr Pape sounded the alarm, saying more hardship would come for residents already grappling with an energy crisis, cost-of-living pressures and rising interest rates.
His prediction adds to investment firm Deutsche Bank’s gloomy projections and their forecast that the country will enter a recession in 2023.
Some financial experts disagree, saying Australia’s workforce remains strong relative to the rest of the world and a recession can be avoided as long as GDP continues to grow.
Barefoot investor Scott Pape has warned that a massive global economic downturn will hit Australia next year (stock image)
Mr Pape has sounded the alarm, saying more pain is on the way for residents already grappling with an energy crisis, cost-of-living pressures and rising interest rates
“Do you think the last few years have been crazy? Wait and see what 2023 has in store for us,” Pape wrote.
“We are heading towards a global economic slowdown and central banks are raising interest rates.
“It’s like giving a marathon runner two bags full of groceries to carry the last 5km.
“This year’s increases have added $900 a month to the average $500,000 mortgage. And there’s more to come,” she said.
Deutsche Bank warned as early as November that it expected the country to plunge into a recession and that unemployment is expected to rise next year.
“We expect the unemployment rate in Australia to end up at 4.5% in 2023, one percentage point higher than the current unemployment rate at 3.5%,” said chief economist Phil O’Donoghoe.
“If our forecast comes true, this would be considered a recession by our definition, even if – as our forecast assumes – gross domestic product (GDP) avoids two consecutive quarters of negative growth,” he said.
Treasurer Jim Chalmers added fuel to forecasts of a recession by saying difficult economic conditions were “ahead of us.”
“We know that difficult economic conditions, particularly in the global economy, are not behind us. They are ahead of us,” she said.
The central bank raised the cash rate by 0.25% to a 10-year high of 3.1% on Dec. 6.
It is the eighth consecutive cash rate hike, the highest since the RBA began publishing a target cash rate in 1990.
The increases come as the Reserve Bank of Australia continues its efforts to curb consumer spending and curb inflation, which is at a 30-year high in Australia.
ABC economics commentator Alan Kohler said the country could avoid a recession due to high house prices and their knock-on effect.
RBA Governor Philip Lowe said the bank’s board expects interest rates to continue rising next year.
The annual rate of inflation reached 7.3%, with the increase affecting ordinary residents.
Australia’s largest wholesale food retailer, Metcash, warned that food prices rose 8.8% in November alone.
Metcash warned that uncertainty remains about the level of inflation in the future, as well as how the impact on the cost of living could alter consumer behaviour.
However, ABC economic commentator Alan Kohler said the country could avoid a recession due to high property prices and their knock-on effect.
Median house prices continue to remain high across the country, with the average Sydney home costing $1,243,126 and Melbourne home costing $915,005.
Mr. Pape pointed out that rising cash rates had pushed up the average mortgage by about $900 more a month for a $500,000 loan.
Mr Kohler noted that the increase has prompted more people to enter the workforce, especially women, as they look to pay reimbursements.
Kohler noted that the increase has prompted more people to enter the workforce, especially women, as they look to pay reimbursements (stock image)
Employment data is back to the same level as before the pandemic.
Data from Roy Morgan’s Jobs series showed unemployment fell from 0.2% to 9.0% in November.
Australian employment data increased by 112,000 to 13,580,000, with full-time employment up by 296,000 and part-time employment down by 184,000.
The trend reversal was seen as a positive sign of a strengthening labor market rather than a decline expected by Deutsche Bank.
Labor market economist Leonora Risse agreed that the country could avoid slipping into a recession as long as its GDP remains strong.
“Technically, we need to see two consecutive quarters of negative GDP growth for the economy to be officially classified as in recession,” he said.
Data from the Australian Bureau of Statistics showed gross domestic product rose for the fourth consecutive quarter in the September quarter, up 0.6%, slightly below what economists expected.
The economy grew 5.9% in the 12 months to September after rebounding from a low in the third quarter of 2021 as Covid-19 shutdowns forced the economy to contract.
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