Australia not expected to enter recession.

Acting Treasurer Katy Gallagher has called on the states and territories to better “phase” their massive infrastructure projects, but stopped short of labelling them inflationary.

Senator Gallagher said the federal government was working with the states on ways to “smooth” the pipeline.

“All levels of government recognise that inflation is a key challenge in our economy, which is why the states and territories are working with us around how we phase those big infrastructure spends,” she told ABC radio on Wednesday.

The Reserve Bank of Australia, which has been raising interest rates to try and push annual inflation back into its two to three per cent target range, on Tuesday opted to leave rates on hold at 4.1 per cent.

While it agrees inflation has peaked, the central bank warned it could raise rates again in the future if it believes it’s not falling fast enough.

Asked if there was a risk Australia could fall into recession as the economy slows, Senator Gallagher said that wasn’t the expectation of the government or Treasury.

“I note in the decision of the bank yesterday – they do have a line in there that says the board is still expecting the economy to grow as inflation returns to the two to three per cent range,” she said.

Prime Minister Anthony Albanese said he welcomed the decision to keep rate rises on hold, adding the government was doing its bit by banking this year’s budget surplus and controlling spending.

“We didn’t provide the Reserve Bank with any more arguments that they should have further increases,” he told Seven’s Sunrise program on Wednesday.

There have been 12 RBA rate hikes since May 2022, as well as pauses in April and July.

RBA governor Philip Lowe retained his warning that there could be further tightenings, if required, in his statement on the July call.

The Commonwealth Bank economists still expect one more 25-basis-point hike in August.

NAB is forecasting two more hikes, with the bank expecting upcoming wages and inflation data to keep the pressure on the RBA.

ANZ was reluctant to move away from its call for the key cash rate to peak at 4.6 per cent just yet, and AMP is tipping two more 25-basis-point hikes as well.

AMP chief economist Shane Oliver said while the RBA’s posturing signalled more hikes are on the cards, that could ratchet up the risk of recession.

“We think that the RBA has done more than enough on rates to slow the economy and bring inflation back to target,” he said.

AMP has put the risk of a recession – which is technically defined as two consecutive quarters of negative economic growth – at around 50 per cent.


Poppy Johnston and Tess Ikonomou
(Australian Associated Press)


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