Australia will enter a recession next year, German investment firm Deutsche Bank is predicting, following a forecast spike in unemployment.
The bank’s dire warning is based on a 1 percentage point increase in the unemployment rate, rather than the ‘technical’ definition of a recession. Traditionally, a recession is defined as two consecutive quarters of negative economic growth (GDP).
"We expect Australia's unemployment rate to end 2023 at 4.5 per cent, that is, one percentage point higher than the current unemployment rate at 3.5 per cent," Deutsche Bank chief economist Phil O'Donoghoe said.
The bank believes Australia will avoid the technical definition of a recession, but will meet its definition.
"We have long considered that 'technical' recession definition singularly unhelpful for Australia,” O'Donoghoe said.
“From a welfare perspective, a 1 percentage point rise in unemployment within a year is a far more useful description.”
Deutsche Bank’s jobless prediction is much higher than that of the Reserve Bank, which is predicting the unemployment rate to remain around 3.5 per cent until mid-2023 and reach 3.75 per cent by the end of 2023.
It then expects it to increase to around 4.25 per cent by the end of 2024, as economic growth slows.
Recession not likely
Managing director of Market Economics Stephen Koukoulas said the unemployment rate was just “part of the puzzle”.
Koukoulas agreed the jobless rate would rise to around 4.5 per cent in the next 12 to 18 months as the economy slowed down, but said Australia was unlikely to enter a proper recession.
“For the economy to go backwards - which is a proper recession - it looks just about impossible given what we are seeing,” Koukoulas said.
He said that was because there was a strong outlook for business investment. Government demand is neutral and household spending is slowing down but unlikely to turn negative.
“It’s a classic softening, which both the RBA and Treasury are forecasting.”