Finance
70% Australian businesses predict recession within 12 months
Most industry professionals anticipate Australia is heading for a recession, according to a new survey.
Advisory and investment firm KordaMentha and the Turnaround Management Association (TMA) of Australia surveyed insolvency professionals, turnaround advisors, company boards and lawyers for their insights on the economic outlook during the next 12 months.
Surveys were sent to hundreds of firms, gathering 115 responses.
Most of the survey respondents were in Victoria (43 per cent), while views also came from New South Wales (36 per cent) and Queensland (12 per cent).
Other states combined represented 9 per cent of the views reported.
This year, respondents were “resoundingly more bearish” on the economy than previous surveys — financial markets jargon for pessimistic.
Among the key findings, 70 per cent of those surveyed “anticipate a recession in the next 12 months, including 19 per cent who anticipate a recession in the next six months.”
Drilling down further, “51 per cent of respondents anticipate that a recession is likely in Australia in the next 12 months.”
The KordaMentha — TMA Australia 2023 Turnaround Survey report noted sentiment among working professionals had fallen noticeably during a relatively short space of time.
“This is a significant shift from September 2022 when only 27 per cent of respondents anticipated a recession,” the report said.
Around 47 per cent “anticipate inflation to remain around current levels over the next 12 months, with a third of respondents believing it will continue to rise.”
“Respondents overwhelmingly anticipate a recession as the impact of inflation and rising interest rates flow through the economy.
“Compounding these forces for business is a tightening of traditional debt and equity markets.”
Economic Impact of Interest Rate Increases
Earlier this week, the Commonwealth Bank’s chief economist noted that while the economy was already showing signs of stress, the Reserve Bank’s May and June interest rate decisions (lifting the cash rate by 0.25 percentage points in each month) were still yet to be felt by mortgage borrowers.
In other words, households will need to tighten their purse strings more in coming months while retail spending continues to slow.
Businesses also remain under pressure, according to the survey.
“Rising costs and wage increases are the primary cause of financial pressure on businesses,” the report noted.
“These pressures are leading to distress in sectors that are unable to pass through these costs to consumers either for contractual reasons (construction) or due to weak demand (consumer discretionary and commercial real estate).”
The five most distressed sectors are construction, consumer discretionary, commercial real estate, healthcare and residential real estate.
The National Australia Bank’s economists do not see a recession for Australia over the foreseeable future.
“Our best guess at this stage would be that in the June quarter [consumption] is flat,” NAB’s chief economist Alan Oster said.
“We’ve increased a little bit our June quarter [economic forecast] because of exports.
“We really don’t see the economy picking up until you get [interest] rate cuts and you basically start to see the world improve a little bit.”
The bank sees China’s economic health as a key risk for the Australian economy.
The Reserve Bank is also looking at global economic developments, including China.
“Members noted that the outlook for the Chinese economy had been revised lower and was subject to a high degree of uncertainty,” the RBA’s latest board meeting minutes said.
“The outlook depended on how the recovery in household consumption evolved, and the scale and effectiveness of policy support, particularly in the property sector.”
However, it does not forecast an Australian recession over the forecast period.
“Members observed that the economy was expected to grow well below its trend pace over 2023 as cost-of-living pressures and higher interest rates weigh on demand,” the RBA said.
“Growth in output was forecast to increase, albeit only gradually, over the remainder of the forecast period, supported by an easing of these headwinds and a pick-up in household wealth following the turnaround in the housing market.
“Year-ended [gross domestic product] GDP growth was expected to trough at 1 per cent at the end of 2023, before gradually picking up to around 2-and-a-quarter per cent by the end of 2025.”
The bank’s forecasts show inflation is expected to return to the bank’s target band of between 2 and 3 per cent by the middle of 2025, with the unemployment rate rising to 4.5 per cent.
Source: ABC News
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