Australia may not enter a 'technical' recession, but for some it will feel like one, says Alan Oster

[00:00:00] Alan Oster: It's going to be tough and for some people it will feel like a recession. [00:00:08] Speaker 2: Welcome to the program. [00:00:10] Alan Oster: Thanks, it's a pleasure to be here. [00:00:13] Speaker 2: Look, close to half of all businesses are still getting squeezed by costs, Alan. Is high inflation now embedded in the Australian economy? Michelle Bullock's worst fear. [00:00:25] Alan Oster: I don't think it is. If you look at inflationary expectations, they're still pretty low. I don't think the ACTU has helped a lot by pushing for big increases in wages. But ultimately, we've had surveys, one today, that looked at essentially the supply chain. And it was saying that things like petrol prices had affected profitability in about 70% of firms. About 44% of firms, though, said that they didn't pass it on. But those in some sectors were seeing very high increases in petrol prices and their costs. So business costs continue to go up. [00:01:07] Speaker 2: But we have seen lower, sorry to interrupt, but we have seen lower fuel prices recently. So that must be helping businesses' bottom lines. [00:01:14] Alan Oster: It will help when it fully passes through. And so, you know, at the end of the day, you've still got some sectors like agriculture, accommodation and food, transport, that are still finding it difficult. But I think ultimately, inflation is still very high. It will probably stay high for a while. But ultimately, I think also, the economy is slowing quite a lot. And with unemployment going up, and I think it will continue to go up by the end of the year. I, for example, think unemployment rate 4-4 now, maybe 4-8 by the end of the year. Reserve Bank's not expecting that, but I think that's what will actually happen. So that will make things a little bit harder for prices to continue to accelerate. [00:02:04] Speaker 2: Well, the main reasons behind the higher costs in this report included rising business overheads, staffing-related costs, as you've mentioned, and upcoming debt finance arrangements. But is the real problem, Alan Oster, let's be honest here, lackluster productivity? [00:02:23] Alan Oster: I think the short answer to that is yes. Australian productivity is very low. It's around 1%. And to put it in a better context, I've been around economic forecasting for about 40 years. This is the first time that the Australian productivity results are weaker than the OECD average. So part of the story is the strength of public spending in areas such as health, education and government services. Now, in the long run, that might be OK, but in the short run, they're not very high productivity industries. So you get the issue that the government's spending in areas that are not helping the productivity debate. [00:03:08] Speaker 2: And the Reserve Bank mentioned, quote, persistently weak productivity, end quote, in the minutes of its June board meeting. But it's also said that the economy was operating with excess demand and widespread inflationary pressures. That sounds awfully hawkish to me. [00:03:25] Alan Oster: I think they're basically saying, if we need to do anything, we will do it. So they're not ruling out another rate rise, but they've got time to sit back and watch. And if anything, the inflation numbers have been a touch lower than they were expecting. And I think when we get the second quarter CPI, the RBA is expecting something like 1%. I think it's probably lower than that, maybe 0.9 or 0.8, if you're lucky. But it basically would say that if you've got a dual mandate, i.e. unemployment and inflation, you should be aware of both, not just focusing on one. [00:04:08] Speaker 2: Just very briefly, I can't help but think back at some of the things you've said in this interview, though. And you are talking about persistently high inflation, the potential for lower growth, and also rising unemployment. On the record, recession. I know you've been conservative with your forecasts, but you're independent now. Are we facing the risk of a recession? [00:04:28] Alan Oster: There's a risk of recession, but I don't really see it in our forecasts. The global economy is still doing what I'll call OK, growth of around three. Whereas if it was global recession, growth would be one. I think the Australian economy, if you looked at it, I don't see a number of negative quarters. But I do see unemployment going up a bit. So it's going to be tough and for some people to feel like a recession. But in the technical definitions that economists use, basically, I don't think we're going to have a recession. I think growth might be something like 1.3% over the course of this year. [00:05:11] Speaker 2: Well, Alan Oster, it's always terrific to get your insights. Thank you for joining the business. [00:05:15] Alan Oster: Thank you very much. [00:05:29] Speaker ?: Thank you for joining us.