Grim Forecast: 70% of Businesses Anticipate Australian Recession in the Coming Year

According to a recent survey, a majority of industry experts foresee Australia moving towards a recession.

Conducted by KordaMentha, an advisory and investment firm, in collaboration with the Turnaround Management Association (TMA) of Australia, the survey engaged insolvency professionals, turnaround advisors, company boards, and lawyers to gain insights into the economic trajectory over the upcoming 12 months.

The survey was distributed to numerous firms, resulting in a compilation of 115 responses. The majority of these participants were located in Victoria (43%), with additional contributions from New South Wales (36%) and Queensland (12%).

Collectively, the viewpoints from other states constituted a mere 9% of the reported perspectives.

This year’s respondents exhibited a markedly more pessimistic outlook on the economy compared to previous surveys, aligning with the financial markets’ term “bearish.”

Among the notable discoveries, a significant 70% of those surveyed hold the expectation of an impending recession within the next 12 months, including 19% who predict its arrival within the next six months.

Upon closer examination, “51% of respondents believe that a recession is a probable scenario for Australia in the upcoming year.”

The KordaMentha — TMA Australia 2023 Turnaround Survey report highlighted a noticeable decline in sentiment among industry professionals over a relatively short timeframe.

“This marks a substantial shift from September 2022 when only 27% of respondents foresaw a recession,” as stated in the report.

Approximately 47% “foresee inflation maintaining its current levels over the next 12 months, while a third of participants anticipate its continued ascent.”

“Respondents largely expect a recession due to the ripple effects of inflation and the escalation of interest rates throughout the economy.

“Further complicating matters for businesses is a constriction in traditional debt and equity markets.”

Earlier this week, the Chief Economist of the Commonwealth Bank remarked that although signs of strain were already evident in the economy, the impact of the Reserve Bank’s decisions in May and June to increase the cash rate by 0.25 percentage points each had yet to be felt by mortgage borrowers.

In essence, households will need to tighten their financial belts even more in the coming months as retail spending continues to decelerate.

The survey indicates that businesses are grappling with ongoing challenges.

The primary sources of financial strain for businesses, as pointed out in the report, are escalating costs and wage hikes.

“These pressures are triggering difficulties in sectors where passing on these expenses to consumers is unfeasible, either due to contractual obligations (such as in construction) or due to subdued demand (as seen in consumer discretionary and commercial real estate sectors).”

The sectors experiencing the highest levels of distress encompass construction, consumer discretionary, commercial real estate, healthcare, and residential real estate.

Contrary to this, the economists at the National Australia Bank foresee a recession for Australia as unlikely in the foreseeable future.

“We currently estimate that the consumption in the June quarter will remain stagnant,” remarked NAB’s Chief Economist, Alan Oster.

“We have slightly adjusted our economic forecast for the June quarter due to increased exports.

“We anticipate a true improvement in the economy only when there are [interest] rate cuts and as the global situation gradually ameliorates.”

The bank is closely monitoring China’s economic well-being as a notable risk factor for the Australian economy.

Furthermore, the Reserve Bank is actively observing international economic developments, including those in China.

As per the RBA’s most recent board meeting minutes, it was observed that the projection for the Chinese economy had been revised downward, with a notable level of uncertainty surrounding it.

“The trajectory of the Chinese economy has been revised to a lower level, and this trajectory remains highly uncertain,” the minutes stated.

“The future course hinges on the progression of household consumption recovery and the effectiveness of policy interventions, particularly those pertaining to the property sector.”

Nonetheless, the RBA’s projections do not indicate the occurrence of an Australian recession within the forecasted period.

“Members acknowledged that the economy’s growth trajectory for 2023 is expected to deviate significantly below its typical pace due to inflationary pressures and the influence of heightened interest rates on consumer demand,” the RBA elaborated.

“The growth in economic output is anticipated to ascend, albeit gradually, during the remaining span of the forecast period. This growth will be supported by the easing of these impediments and a resurgence in household wealth resultant from the revival of the housing market.

“The year-end gross domestic product (GDP) growth is projected to reach its lowest point of around 1% by the conclusion of 2023, gradually gaining momentum to approximately 2.25% by the close of 2025.”

The bank’s projections indicate that inflation is anticipated to re-enter the target range of 2 to 3 percent by the middle of 2025, coinciding with a rise in the unemployment rate to 4.5 percent.