RBA Interest Rate Hike Raises Recession Fears

The Reserve Bank of Australia (RBA) is expected to raise interest rates again on Tuesday, but how much more can the economy take? HSBC chief economist Paul Bloxham believes there's a 50% risk of Australia falling into recession.

Bloxham expects the cash rate to reach 4.85% by November, which would be another 25 basis point increase from the current 4.35%. He's concerned that additional rate hikes could push the economy into a technical recession, characterized by two consecutive quarters of economic contraction.

Economic growth is already slowing, and higher borrowing costs and weaker consumer spending could hurt earnings across the Australian Stock Exchange (ASX), particularly among banks and retailers. Bloxham also forecasts a 13% decline in property prices from their peak, which would be the biggest drop in up to 40 years.

However, not everyone agrees that a recession is imminent. Westpac Banking Corp expects the economy to keep growing, with quarterly growth of 0.6% driven by investment in data centers. But Bloxham isn't convinced, estimating that around 85% of this investment involves imported equipment, which would mean much of the money goes overseas.