Consumer sentiment around personal finances has fallen to levels not recorded since the economy last contracted. Household finances in parts of the economy remain under notable strain, prompting economists to examine whether conditions could tip into a downturn. Those who study the matter place the probability low, though they stop short of ruling it out altogether.
Joblessness has held near historic lows, and the broader economy, while expanding at a modest pace, has posted unbroken positive GDP growth in every quarter stretching back to early 2021. Sentiment readings from households point to mounting financial strain, according to the latest available data.
The Westpac–Melbourne Institute index retreated 4.7 per cent in October, settling at 80.4 — a reading that brings consumer confidence back to territory last visited during the recession of the early 1990s. After the RBA lifted the cash rate to 4.6 per cent on 29 September, the subset of respondents surveyed from that date onward returned an index reading of 67.2, a notably lower result than the broader sample had produced.
Greg Jericho, chief economist at the Australia Institute, told a broadcaster that a recession remains avoidable for the country, provided interest rates do not climb further — though he noted that any additional rate increases would raise that risk. Of Australia's four leading banks, views on the Reserve Bank's forthcoming decision are not uniform, with ANZ and Westpac each forecasting a 0.25 percentage point rate increase in November. Forecasts from across the lending sector point to interest rates holding steady well into next year, with any reduction expected only after the halfway point.
Jericho pointed to the seasonally adjusted jobless rate, which had climbed 0.6 percentage points since January, and argued that such a trajectory — whatever the absolute level of unemployment — does not reflect a labour market in good health. A jobless rate climbing to five per cent over the coming six months would, in his view, place the Australian economy at the edge of a downturn.
At a press conference following the Reserve Bank's most recent rate increase, Governor Michele Bullock faced questions about whether bringing inflation under control in Australia would require the economy to tip into recession. She noted that while the central bank did not anticipate such an outcome, it remained a possibility, and she expressed that she hoped it would not prove necessary, while acknowledging that certain circumstances might yet require it.
The RBA governor outlined a scenario in which unanchored inflation expectations could force a pronounced economic contraction to restore price stability, while also noting that the central bank's current approach aims to reduce inflation without driving up unemployment — adding that, despite a personal reluctance to see jobs lost, the bank would take whatever steps the task required. Bullock argued that keeping unemployment from rising steeply was a worthwhile goal, while also warning that leaving inflation unaddressed would force interest rates higher and leave the economy in a weaker position overall.
Westpac's survey of Australian consumer sentiment found that pressure from elevated living costs and mortgage repayments — rather than fears about employment — was driving the downbeat mood. Fuel costs have risen by nearly a quarter over the first months of the year, while a survey found that more than four in five consumers anticipate another upward move in mortgage rates.
Jericho contends that additional rate rises, rather than easing cost-of-living pressures, would fall hardest on households while leaving untouched the external forces pushing up the prices of everyday essentials. He argues that household budgets could be shielded from rising costs through measures such as energy subsidies and a 50 per cent reduction in fuel excise, with any resulting deficit widening offset by levying a 25 per cent tax on gas exports. Estimates put the annual revenue from such a measure at approximately $17 billion.
