Along with other Macquarie economists, Sophie Photios estimates there is a 50 percent chance of recession this year as the “trap” of high migration unwinds and high interest rates leave the private sector in “stagnation”.
According to AFR, Photios claims strong net migration of more than half a million people over the past year had also added to inflation pressure including rents.
Photios also describes the economy as a “masquerade”, where the “surge in immigration” has masked the gap between the economy growing modestly in total but going backwards in per-person terms.
“Population is at the centre of the Australian story as it is working on growth in a ‘positive’ way and on inflation in a ‘negative’ way – and has offset the impact of combined policy tightening,” Photios said in a joint report with colleague Graham McDevitt.
“Australia’s migration pulse is expected to taper off in 2024, and when this happens, it does not appear that households, business, or trade will be able to fill the growth void”.
The Macquarie report was published last month prior to the federal budget and Opposition Leader Peter Dutton’s plan to cut migration.
In addition, Photios and McDevitt stress that “If population growth slows, then aggregate growth slows, and if there is no other driver of growth, the economy is at risk of recession.”
Macquarie economists expect an interest rate cut in the second half of 2024 after an “extended RBA pause”, as inflation’s slower economic growth and a moderation will give the central bank space to reduce financial pressure on Australian households.
Source: AFR
