Economists are commenting on whether Australia may or may not have a recession next year. As of late, Australian economic activity has been displaying only some of the indicators of a possible, but unlikely recession. These indicators include increased cash rate, falling property market and the share market officially becoming a Bear Market in mid-June.

Whilst there is no singular definition of a recession, economists say its 2 consecutive quarters of negative growth (GDP). Another definition is a “significant, pervasive and persistent decline in economic activity”. A recession is generally perceived to last for years, yet a recession usually lasts for an average of 11 months, but the community tends to feel the impact significantly longer than this.

According to recent research from Goldman Sachs, there is a only a 25% chance of Australia entering a recession in the next year. A sharp downturn in the US would lift this probability to 50 – 60%. Whilst Australia technically experienced a recession in June 2020 at the start of the pandemic, it recovered quite strongly and most did not experience the full effect of a recession. This was Australia’s first recession in almost 30 years, with the June quarter Gross Domestic Product (GDP) numbers indicating the country went backwards by 7%, the worst fall on record. This decline was worse than economists had predicted at the time.

What happens during a recession?

Whilst there is no way to predict what exactly will occur during a recession, generally:

• Household spending will decrease
• Individual consumers will pull back, putting pressure on small businesses.
• Unemployment will increase
• The value of property is likely to decrease
• Interest rates increase
• Banks re-evaluate their lending, which has the potential to impact individuals and businesses alike.
• The share market will likely experience turbulence.

Which industries are most likely to be impacted?

During periods of economic stress, individuals are likely to spend less on “non-essential” goods and services. Historically the following industries have been hardest hit by a recession:

• Hospitality
• Retail
• Hair & Beauty
• Automotive
• Oil & Gas
• Sports
• Real Estate

On the other hand, many industries thrive during a recession. The technology, drug manufacturing and trucking and logistics industries all experienced a boom during the Global Financial Crisis. 

Lets keep a keen close eye in the coming months on how the economy performs, as it is prudent to always be prepared.