There are growing concerns about the US and British economies, which appear to be heading into a recession due to raging Inflation and central banks around the world raising interest rates. China’s economy is straining under the pressure of its zero-COVID policy and problems with its falling property market.
So, is a recession coming our way?
As expected, the Reserve Bank of Australia has slammed on the brakes harder than it has in 28 years in an attempt to curb Inflation down to the 2-3 per cent target. However, the media enjoys seeing the glass half empty rather than half full.
There are no positive signs for the global economy, according to the RBA
As expectations for rises in interest rates increase, the outlook for house prices and shares worsened in the last few weeks on the back of economic data showing that Inflation would be harder to budge in Australia and the US.
Despite admitting the world’s largest economy may be heading for a recession, Fed chairman Jerome Powell argues that the need to combat Inflation is so urgent that interest rates will keep on rising.
How effective are interest rate increases?
To my mind, the RBA has two really important tasks:
- To reduce Inflation and;
- To keep us from entering a recession.
Despite reduced borrowing capacity for those interested in property, Australians are still spending big.
With a lag of up to two years, it will be hard for the RBA to know how high to push interest rates.
Thus, the short-term effect could be limited, but once households realize how much they are paying each month for their home loans, they’ll stop their spending spree.
This approach will kill Inflation but could lead to a recession.
2.2 Million Australians are considered millionaires
Despite what it might seem, Australians are the wealthiest people in the world, according to Credit Suisse. According to the Australian Census Bureau, 2.2 million Australians are considered millionaires,and their median net worth is $273,900, which is higher than Belgium, New Zealand, or any other country in the world.