Recession headed to Australia according to expert as house market plunges and wages flatline

Australia could suffer an unavoidable recession by Christmas for the first time in 28 years, an expert has warned.

Daily Reckoning Australia editor Shae Russell said plummeting house prices, weak consumer spending and wage stagnation had created the perfect conditions for an economic contraction.

‘We’re only now starting to really consider the idea of an Australian recession is very real now that property prices are falling, that’s sort of quite visible in people’s minds,’ she said in a Youtube video.

Ms Russell predicts the Australian economy will, for the first time since 1991, plunge into a technical recession –  when gross domestic product shrinks for two consecutive quarters.

Australia could be headed towards an unavoidable recession as soon as the end of the year, an expert has warned (pictured, Shae Russell)

Daily Reckoning Australia editor Shae Russell said plummeting house prices, less consumer spending and wage stagnation have created the perfect conditions for an economic crash (stock image)

Daily Reckoning Australia editor Shae Russell said plummeting house prices, less consumer spending and wage stagnation have created the perfect conditions for an economic crash (stock image)

Contributing factors that could lead to a technical recession 

  • Wage stagnation: Australia has had the slowest sustained rate of wage growth since the mid 1940s. Nominal wages have increased at about 2 per cent since 2015 – according to the Australian Bureau of Statistics (ABS).
  • Tumbling house prices: According to recent CoreLogic data, prices in Australia’s biggest city have slumped by 11.8 per cent over the past year, with Sydney home to seven of Australia’s 10 worst performing metropolitan housing markets in March.
  • Less consumer spending: Ms Russell noted the combination of stagnant wage growth and tumbling property prices led homeowners to think twice before they spent their money.  ‘People don’t feel as rich as they did before knowing that their house isn’t worth as much before,’ she said.

Sydney property prices have slumped by 11.8 per cent in the past year, CoreLogic data showed.

Median house prices have dived by a record 16 per cent, or $169,140, to $880,594, since peaking in July 2017 despite record-low interest rates. 

Since reaching a summit in November 2017, Melbourne’s housing market has plummeted by 13.8 per cent, or $114,005, to $718,443.  

‘People don’t feel as rich as they did before knowing that their house isn’t worth as much before,’ Ms Russell said. 

Australia has had the slowest sustained rate of wage growth since the mid-1940s.

Nominal wages have increased at about 2 per cent since 2015, Australian Bureau of Statistics data showed.

Wages rose just 0.5 per cent in the December quarter. 

What’s more, the Fair Work Commission (FWC) admitted the minimum wage of $18.93 per hour – or $37,398 per year – meant many full-time workers were left struggling.

‘Towards the end of this year, the data is finally going to catch up with people’s thoughts and what they feel, and that is they don’t feel rich,’ Ms Russell said.

The Reserve Bank of Australia has kept interest rates at a record low of 1.5 per cent, for the 33rd straight month, in a bid to help families. 

Ms Russell said she wasn’t optimistic interest rate cuts would go far enough to save the economy.

‘Monetary policy in Australia is starting to show its limits,’ she said.

‘Sure, the Reserve Bank has current interest rates at 1.5 per cent, and there are probably going to be a couple of rate cuts this year as well.

Ms Russell pointed out a stagnant wage growth would play a hand in the potential economic downturn (stock image)

Ms Russell pointed out a stagnant wage growth would play a hand in the potential economic downturn (stock image)

Australian house woes

Sydney, down 11.8 per cent, to $880,594

Melbourne, down 12.4 per cent, to $718,443

Brisbane, down 1.3 per cent to $538,544

Adelaide, up 0.7 per cent to $460,673

Perth, down 7.6 per cent to $467,783

Hobart, up 5.7 per cent to $493,237

Darwin, down 3.2 per cent to $478,191

Canberra, up 3.9 per cent to $669,911

Source: CoreLogic  Home Value Index for March 2019 showing annual movements in median prices for detached houses 

‘But with every rate cut comes further problems.’

Ms Russell noted the economy had managed to stay afloat through numerous government initiatives, such as infrastructure spending. 

But even that isn’t enough to save off a doomed forecast, she warned. 

‘We’ve already got $80 billion works of federal projects underway.

‘We don’t need white elephant projects to save the Aussie economy, but furthermore, it would save a portion of the economy, other people who still be affected by that.

‘More to the point, if they do go in and start creating these giant infrastructure programs, there’s only one way to do that, and that’s with debt, and by increasing that debt, we pass that debt burden onto our kids once more.’

AMP Capital’s chief economist Shane Oliver told Daily Mail Australia he does not agree with Ms Russel’s claims, and the possibility of a recession was ‘unlikely’.

‘There’s no doubt housing is going to be a drag, but there are a bunch of things to keep the economy growing. There has been growth in infrastructure, non-mining business investment is picking up and exports growth looks like it should remain reasonable.’

Mr Oliver admitted there could be constrained economic growth, though it would not be enough to lead to a recession.

In the case that one does occur, he encouraged people to remain on top of their debts. He also noted a stable job would give some added security.

‘There’s not much more you can do beyond that at an individual level,’ he said. 

‘At a big picture level, the government can do more fiscal stimulus, and interest rate cuts will help support the economy,’ Mr Oliver said. 

ANZ head of Australian economics David Plank noted that even during the last deep recession in the 90s, many people managed to keep hold of their jobs.

Ms Russell advised people to invest their money wisely so it produced regular income.

Back in the June quarter of 1991, when Australia was last in recession, unemployment had climbed to 9.9 per cent, a sharp rise from 5.8 per cent just 18 months earlier. 

By December 1992, the jobless rate hit 11.2 per cent, the highest level since the 1930s Great Depression, even though the economy was no longer officially in recession. 

The Reserve Bank of Australia has kept interest rates at a record low of 1.5 per cent, for the 33rd straight month, in a bid to help families

The Reserve Bank of Australia has kept interest rates at a record low of 1.5 per cent, for the 33rd straight month, in a bid to help families

Surviving a technical recession 

  • While AMP Capital’s chief economist Shane Oliver said the possibility of a technical recession was ‘unlikely’, in the off-chance it did happen, he advised people to remain on top of their debts. He also said a stable job would be an added security. 
  • ANZ head of Australian economics David Plank said in the last deep recession in the 90s, most of the people managed to keep their jobs. 
  • Daily Reckoning Australia editor Shae Russell advised people to invest wisely. She said investments that returned a regular, annual income would go a long way in keeping a person afloat during tough times.

 

 

 

 

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