Question
Are we going into a recession?
Well, we're already in a per capita recession - the economy is growing but the population is growing faster, so the slice of pie that each person gets is smaller. So, if you feel like we're in a recession then you'd be right in the sense that
you're in a recession.
Whether we will enter a technical recession (two consecutive quarters of negative growth, like Gronky posted) is a bit trickier.
Wage growth is low and unemployment is not falling (bouncing between 5.2% and 5.3% for the last few months), so those are not good signs at all. However, the last two quarters of GDP growth have been 0.5% each, which is not great but better than the two before that (0.4% combined), so perhaps the interest rate cuts and tax rebates are having some positive effect...
Still, there's not much hope that GDP growth will push higher than 0.5% - the RBA doesn't have many bullets left and the tax rebates have been spent, now, so they probably won't affect the next two quarters. Even if we hold on 0.5% per quarter that's only 2.0% annualised and that's pretty crap.
So, in summary - wage growth and unemployment don't look good. GDP growth looks middling but may not have the stimulus to hold that level, let alone grow, so that's not a good sign, either.
Yet population growth still sits at 1.6%. Not good.
So, talking purely in economics, if we want to avoid what looks to be negative economic signs, we need to reduce immigration for the next 12-24 months. This will shrink the available labour pool, reduce unemployment and, eventually, stimulate wage growth (once unemployment gets below 4.8%). This will give inflation a kick, which will see the RBA raise the cash rate away from emergency levels, and the inflation will finally provide the trigger to raise immigration again to increase the labour pool and balance things out.
Another poor economic sign - house prices are still down. Don't believe the headlines - CoreLogic now have poor data since REA purchased HomeTrack. The REA is where the real data is, now, and they are showing 3%-ish growth in an averaged Sydney, but it's the
averaged part that's important. Vaucluse is up 20%, Rose Bay up 12%, but places like Emu Plains, Campbelltown etc. are still down. Most places are still down but that's being hidden behind the top quartile seeing significant growth in house prices. The reduced cash rate doesn't seem to have done anything to save the housing market, and how much of our wealth is based on that?
