Warning: recession could be just around the corner

If history is anything to go by, Australia’s economy is teetering on the brink of recession, according to ANZ chief economist Saul Eslake.

Speaking at the Chartered Accountants Business Forum this week, Eslake said the nation’s economy was at a similar stage to where it was prior to each of the past four recessions.

He warned that Australia’s strong economic growth could come to an end if the Government repeated previous mistakes.

Those mistakes, he claimed, included allowing wages to grow faster than justified in a tight labour market, failing to allow the Reserve Bank to raise interest rates before inflation acceleration commenced and not running large enough Budget surpluses by giving away too much in the form of tax cuts and increased spending.

He said the third mistake posed the most threat to today’s economy and that there were visible constraints preventing the country from being able to sustain its current level of growth.

“Upward pressure on prices is starting to emerge in some places, the Reserve Bank thinks that inflationary pressures are increasing, Australia’s productivity performance has been deteriorating and consumer spending has slowed,” Eslake said.

He added that there were significant global risks that Australian businesses should be aware of.

In particular, he said the accumulation of large surpluses in oil producing nations, coupled with the withdrawal of liquidity by global central banks could result in global market instability.