‘Are you going to use the ‘r’ word?’ Expert admits to David Koch that a toxic mix of falling house prices and mining downturn could soon see Australia in RECESSION
- U.S. investment bank JPMorgan is forecasting four interest rate cuts in Australia
- Chief economist Sally Auld said cash rate could fall to new record low of 0.5%
- Bell Direct equities analyst Julia Lee warned Australia in danger of a recession
- Housing, mining slowdown could shrink economy for the first time since 1991
Interest rates in Australia are expected to be slashed by a third to a new record low within the next year as fears of a recession grow.
American investment bank JPMorgan is now forecasting four interest rate cuts by the middle of 2020 which would take the cash rate to just 0.5 per cent, down from 1.5 per cent now.
The group’s chief economist in Australia Sally Auld predicted the Reserve Bank would cut rates twice by Christmas and two more times in the first half of next year.
Bell Direct equities analyst Julia Lee said Australia was in danger of falling into a recession for the first time since 1991, as house prices continued to fall and uncertainty in China and the United States affected global commodity prices.
‘If the housing market continues to slow down and … if we see mining start to come back, then I think we would be headed for a recession,’ she told the Seven Network’s Sunrise program on Thursday morning.
Sunrise host David Koch had to press Ms Lee twice to admit Australia was close to recession.
‘C’mon, Julia, are you going to use the ‘r’ word? Are we headed for a recession?,’ he asked.
While JPMorgan is forecasting four rate cuts, of a quarter of a percentage point each, Bell Direct is predicting two lots of easing, which would take the cash rate to one per cent.
‘Here, domestically, we’re definitely slowing down and the numbers are showing that,’ Ms Lee said.
‘Two interest rates cuts would be deserving of what’s happening in terms of the domestic economy.’
JPMorgan economists Ms Auld, Ben Jarman and Tom Kennedy said Prime Minister Scott Morrison’s surprise election victory would not be enough to stave off an economic slowdown, even if a Coalition win had improved housing and business confidence.
Bell Direct equities analyst Julia Lee (right) said Australia was in danger of falling into a recession for the first time since 1991. Sunrise host David Koch (left) had to press her twice
‘There is also the possibility that some economic data turn more positive given the election result and recent policy decisions,’ they said in an economic note on Wednesday.
‘But we would be inclined to fade any recovery in housing data, given that debt-to-income restrictions operate as a more binding constraint on credit growth and housing than do interest rate serviceability tests at present.’
Labor lost this month’s election, despite opinion poll and betting market predictions of victory, after it campaigned to scrap negative gearing tax breaks for existing properties from January 2020.
Since peaking in July 2017, Sydney’s median house price has dived by a record 16 per cent, CoreLogic data for April showed.
Interest rates have been at a record low of 1.5 per cent since August 2016.
Inflation in the year to April grew by just 1.3 per cent, which was well below the Reserve Bank’s two to three per cent target.
Economic growth during the December quarter was a weak 0.2 per cent.
Ms Lee said a housing market slowdown in Australia added to the risk of recession as U.S. investment bank JPMorgan forecast four rate cuts by mid-2020 (pictured is Cecil Hills in Sydney)