A queue of people stretches down York Street in South Melbourne, starting at the entrance to a Centrelink building.

Australia will enter recession next year, says a major investment bank

If the forecasts of the investment company Deutsche Bank come true, Australia will enter a recession next year.

However, the bank did not use the accepted definition of “technical recession” to create its forecast.

A recession is traditionally defined as two consecutive quarters of negative economic growth (GDP).

Instead, Deutsche Bank looked at where it thinks the unemployment rate is headed.

Australia’s unemployment rate is expected to rise next year as the economy slows.

“We expect Australia’s unemployment rate to be 4.5 percent by the end of 2023, one percentage point higher than the current unemployment rate of 3.5 percent,” said Deutsche Bank chief economist Phil O’Donoghoe.

Deutsche Bank expects unemployment rate to rise as Australia’s economy slows. (Reuters: Luke MacGregor)

The RBA’s forecast unemployment rate for the end of 2023 is significantly lower at 3.7 percent.

“If our forecast comes true, it would be considered a recession by our definition, even if – as our forecasts assume – gross domestic product (GDP) avoids two consecutive quarters of negative growth,” he said.

“We have long considered this ‘technical’ definition of recession extremely unhelpful for Australia.

“From a welfare perspective, a one percentage point rise in the unemployment rate over the course of a year is a much more useful description,” argued Mr O’Donoghoe.

Labor market economist Leonora Risse disagreed.

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