Watch out for harsh Aussie recession: Bentham

Bentham/Richard-Quin/

23 June 2022
| By Laura Dew |
image
image
expand image

Australia is likely to experience a recession worse than US if the pace of interest rate rises continues, according to Bentham.

Speaking at a roundtable, Bentham chief investment officer, Richard Quin, said the current rate of high inflation had not been as transitory as people had initially expected and he expected them to peak at 7% in Australia.

When it came to recession, he said it was commonly-found that Australia and the US had opposing reactions but, in this instance, it would be that Australia would fare worse. This was particularly the case as Australia had avoided a significant recession during the Global Financial Crisis unlike the US.

“A recession in Australia would be harsher than other countries because we are 10 times more sensitive to interest rate rises. Rate rises will really smack disposable income in Australia.

“People are pricing in a recession now and it is becoming harder and harder to avoid the more rate rises there are.”

There had been two consecutive rate rises in May and June so far this year, one 25 basis points raise and one 50bps raise which was the highest raise since February 2000.

In its latest minutes, Reserve Bank of Australia (RBA) governor, Phil Lowe, said the decision had been taken to raise by 50bps as rates were still low in an economy with a tight labour market and that there was a heightened risk of persistently-high inflation.

Quin agreed the pace of rate rises was not close to ending yet.

“There are still a lot of rate hikes in the system, there could be as many as 12 25bps rises by the end of the year which would bring rates to 4%. If it gets to that, you will be happy to get a lump of coal for Christmas, it would be brutal.

“I can’t see that happening but if the Aussie dollar falls over then the central bank might not have a choice.”

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

So we are now underwriting criminal scams?...

2 months ago

Glad to see the back of you Steve. You made financial more expensive, not more affordable as you claim, and presided ...

2 months ago

Completely agree Peter. The definition of 'significant change is circumstances relevant to the scope of the advice' is s...

4 months 1 week ago

A Sydney financial adviser has been permanently banned from providing any financial services, with the regulator deriding his “lack of integrity, trustworthiness and prof...

3 weeks 1 day ago

Minister for Financial Services, Stephen Jones, has provided further information about the second tranche of the Delivering Better Financial Outcomes (DBFO) reforms....

2 weeks ago

One licensee has lost 27 advisers in the past week, now sitting at zero, according to the latest Wealth Data figures....

3 weeks 1 day ago

TOP PERFORMING FUNDS