And, as the saying normally goes, “when the US sneezes, the world catches a cold”. But does that mean a recession in Australia is unavoidable if the US is plunged into one?
So, let’s take a look at what the experts are saying and if we really have to be concerned.
Likelihood of a US recession
Betashares chief economist David Bassanese predicted a US recession could be closer than we think.
“Given stubbornly high US inflation and the Federal Reserve’s apparent determination to bring it down, I now foresee a US recession within the next 12 months,” he said.
“Specifically, I anticipate the US National Bureau of Economic Research (NBER) will, at some stage between now and end-2023, declare that a US recession began between June 2022 and June 2023.”
Will Australia follow suit?
It’s not guaranteed.
As it stands, there are some noticeable differences between the Australian economy and the US economy.
For one, US economic growth was negative in the March quarter - the Australian economy on the other hand grew (+0.8 per cent).
And, when it comes to unemployment the US Federal Reserve anticipates unemployment to grow slightly from 3.6 per cent in May to 3.7 per cent by the end of 2022.
And the jobless rate is tipped to edge higher to 3.9 per cent by the end of 2023 and 4.1 per cent by the end of 2024.
But, despite these differences, nothing is guaranteed, Basanese said.
“While I am still hopeful the Australian economy can avoid recession, it is at least a 40 per ent risk in the coming 12 months,” he said.
What can be done to avoid a recession?
For the most part we just have to hope the RBA and Government do their part to help.
The RBA is following the US’s lead and “front-loading” rate rises.
This basically means they’re hiking big and hiking fast to get on top of rising inflation before it spirals out of control.
This means they can hopefully pull-back on rate rises sooner - it’s a plan that centres on short-term pain for long-term gain.
This should help workers keep up with the rising cost of living so people keep putting money back into the economy.
Obviously, there are a range of factors that can impact the economy and, as has been evident from the past two years, you never know what might happen.
But, for now, the signs are pointing to Australia avoiding a recession.