The outlook for the economy is fragile, with the balance of risks evenly poised between breaking to the downside and recession, or skating through and recovering in late 2024 or 2025.

At least that’s the picture the Reserve Bank (RBA) is painting in its latest Quarterly Statement on Monetary Policy.

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Weak economic conditions, rising unemployment, wages growth turning lower and inflation - obviously and inevitably in these circumstances - falling back to the target are the conditions the RBA is forecasting over the next 12-24 months.

In terms of bottom-line GDP growth, the RBA is forecasting a rise of just 0.9 per cent through to the end of 2023, with only a tepid recovery to 1.6 per cent growth in the year ending 2024. This is weak, noting that, with the current population growth, the Australian economy should grow by around 2.75 to 3 per cent per annum to keep the unemployment rate from rising and inflation low and stable.

At one level, the economic slowdown was necessary - and inevitable with the tightening in policy seen over the past 18 months. At another, the gloomy outlook will mean many small and medium businesses will be under financial pressure, the rising unemployment rate will see the ranks of the unemployed increasing by around 150,000 people and the feel of the economy will, for many, be uncomfortable.

Like all updated forecasts from the RBA, there is a strong probability they will be wrong. The big question: in which direction?

If the outcomes err on the downside - perhaps driven by an unexpected decline in global growth, a sharper-than-expected fall in commodity prices or because of weaker domestic conditions under the weight of tight economic policy - the unemployment rate will be higher than currently forecast and inflation will be lower.

There is little margin for error in the RBA’s strategy to squeeze inflation out of the system.

As it stands, the implied quarterly GDP growth profile of the remainder of 2023 is for growth of just 0.2 per cent over each of the next three quarters. Given that population growth is running at 0.4 per cent per quarter, it means a ‘per-capita recession’ with output per person going backwards for a full year.

If population growth remains at that pace into 2024, the 1.6 per cent GDP growth forecast for that year implies zero per-capita growth for a second year.

If the economy underperforms even these quite-pessimistic growth forecasts, it will be in for a tough two years.