There are four factors which could see Australia dodge a recession, according to VanEck.
Australia had previously avoided deep recessions during the Asian financial crisis of 1997, the tech wreck of 2001 and the Global Financial Crisis (GFC) in 2008 thanks to low exposure to the US housing market, high Chinese demand for Australian resources and high-risk loans making up only a small part of Australian lending.
While other countries were facing aggressive interest rates policy, multi-decade high inflation and rising energy prices, VanEck believed Australia could be immune once again.
Cameron McCormack, portfolio manager, said there were four factors which were in Australia’s favour.
These were:
- Lower headline inflation than the US and Europe;
- Less pronounced wage growth than UK and US;
- The Reserve Bank of Australia (RBA) prioritising growth over containing inflation; and
- Being a major commodities exporter.
He said: “Australia has lower headline inflation than the US and many European nations. This means the task of the RBA containing high inflation without triggering a recession, aka ‘hard landing’ relative to other nations less challenging. The majority of Australian mortgages are variable which means cash rate increases immediately impact budgets and corresponding spending. This allows the RBA to pivot faster based on changes in inflation.”
Regarding the RBA’s economic policy, McCormack said its policy preference compared to the Federal Reserve which was “resolute” in driving down inflation to 2% despite the threat of a US recession.
