Woman in mask shopping in Woolworths packaged food aisle June 28

Australia could experience a recession next year, followed by a strong recovery, experts say

Today is the start of the new financial year, but it seems that there is not much to celebrate.

In spite of the minimum wage rises by more than 5 percent from today, Wage growth for the vast majority of workers remains stubbornly low, while the costs of food, energy and petrol continue to rise.

In recent years, millions of Australians have benefited – through investment and pensions – from record high stock and property prices, but these too are now falling in value.

The Australian stock market is down more than 10 percent from its recent all-time high.

Safer investments such as bonds had the worst start to the year since the last 18th century, according to investment company Deutsche Bank.

Shares fell, with Australian equities returning -6.5 percent and global equities around -10 percent.

“As a result, balanced growth pension fund funds are estimated to have seen negative returns of about -3 to -5 percent in the past fiscal year.”

And data from real estate market research firm CoreLogic shows the sharpest slowdown in the real estate market in 30 years.

Cryptocurrencies are also on the nose.

Bitcoin price has crashed to levels not seen since November 2020.

Financial markets are responding to fears that inflation, which is rising at its fastest pace in more than 40 years, will drive interest rates sharply higher, potentially choking demand in the economy as borrowing and spending decline.

“We’ve revised our outlook for real estate prices downwards and now expect a larger peak through to a decline of about 18,” noted NAB chief economist Alan Oster.

“On a month-on-month, seasonally adjusted basis, growth for the NAB Online Retail Sales Index contracted again in May (-0.9 percent), after a significantly revised contraction in April (-1.3 percent).”

Meanwhile, low-wage growth households will continue to struggle with rising food, energy and gasoline prices.

“Our latest weekly consumer tracking data through June 25 shows a somewhat mixed picture,” Oster said.

“A combination of new data and revisions shows that hospitality is in a better position than we expected earlier this month, while retail looks weaker – perhaps a sign of an ongoing shift from goods to services after the pandemic restrictions.

“Other sectors are generally mixed to weaker, suggesting a consumer sector more anxious in the face of high inflation, rising official interest rates and mounting economic uncertainty.

“While rising tariffs have yet to hit consumers (much of this impact will be delayed until 2023), the data points to growing concerns, especially for non-discretionary goods.”

Huge demand from China for Australia’s natural resources and government stimulus payments have kept the economy afloat in recent times, but the latest data shows that buyers are now doing most of the heavy lifting.

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