No recession on horizon despite tepid growth: treasurer

Australia is not expected to fall into a recession, the treasurer has assured, even as interest rate hikes slow the economy to a crawl.

The weak 0.1 per cent rise in economic growth in the three months to March announced on Wednesday was slightly below forecasts, and marked the fifth consecutive quarterly fall on a per-capita basis.

Asked if the result signalled Australia was heading into a recession, Treasurer Jim Chalmers rebuffed the suggestion and insisted the federal budget had helped fight inflation without smashing the economy.

“That’s not our expectation,” he told the Today show on Thursday.

“The economy barely grew in the first three months of the year, we knew it was going to be weak.

“There’s no shortage of challenges in the economy, but I think what the budget has shown is that we don’t just acknowledge those challenges … we’re acting on them.”

The government offered a $300 energy rebate and further rent assistance in its May budget, alongside previously announced tax cuts.

Dr Chalmers noted Australians were saving less as interest rates and inflation eats into their incomes, but emphasised the tax cuts did not pose a risk of continuing inflation.

“Some people will spend them, some people won’t, but I think they will arrive at precisely the right time,” he said.

Commonwealth Bank head of Australian economics Gareth Aird said the slowdown was “by design and not default”, with interest rate hikes working to slow the economy. 

“The economy ran too hot coming out of the pandemic and was operating above its capacity,” he said.

“But that picture has changed.”

Despite the soft growth figures from the Australian Bureau of Statistics, CBA has left its interest rate forecasts unchanged.

With inflation still above target but moderating, most economists think the next interest rate move will be down but the timing remains a subject of speculation.

CBA economists have pencilled in November for their first 25 basis point cut on the expectation the labour market weakens in line with the deteriorating economic picture. 

EY chief economist Cherelle Murphy said the national accounts data revealed an “unwelcome pressure point” in the form of strong demand for travel and accommodation around the Formula One and the Taylor Swift and Pink concerts.

With the job of returning inflation to target not yet done, the economist said interest rates were likely to stay on hold “for some time”.

Reserve Bank of Australia Governor Michele Bullock confirmed she was keeping her options open during a parliamentary hearing on Wednesday, ahead of the national accounts data.

Slower-than-expected growth would trigger the central bank to consider a cut, but on the other hand, stickier-than-expected inflation or a further price increase could be enough to have the board hiking again.