Reserve Bank of Australia governor Michele Bullock’s mention of the word recession during a press conference this week sparked a surge in Google searches, with Australians scrambling to understand what it means and whether the country is heading into one. Bullock emphasized that the RBA is not actively seeking to push the economy into a recession, but her comments nonetheless triggered widespread concern.
The most common definition of a recession in Australia is two consecutive quarters of negative economic growth. However, this measure has its flaws, as historical data revisions have sometimes erased what initially appeared to be recessions. The 2020 pandemic-induced recession, for instance, was unique because it was driven by government policy rather than traditional economic factors, with massive fiscal and monetary stimulus preventing a surge in unemployment despite a 7% economic contraction.
Some economists prefer using the Sahm rule, a measure based on unemployment rates, to identify recessions. Under this rule, a recession is likely if the jobless rate rises by half a percentage point over a three-month period compared to the previous year. While Australia’s unemployment rate has risen slightly, it has not yet met this threshold. However, HSBC Australia chief economist Paul Bloxham warned that the risks of a recession are increasing as the RBA works to curb inflation.
The real-world impact of economic pressures is already being felt. A survey of mid-sized businesses found that costs, including fuel, energy, and insurance, had risen by an average of $6,700 per month over the past year. Job losses are also mounting, with companies like Canva, Heidi, and Woodside announcing significant workforce reductions. Despite these challenges, neither the RBA nor the federal Treasury is currently forecasting a recession, though growth is expected to slow.