Lunatic RBA sees no recession coming. Panic!

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From Captain Phil Lowe yesterday:

“I don’t see a recession on the horizon here,” Dr Lowe told an event in Sydney this morning.

“At the moment the unemployment rate is the lowest in 50 years. The participation rate is the highest ever. There are more working Australians who have jobs than ever before. Households have strong balance sheets. Our terms of trade are at the highest ever, which is really boosting our national income,” he said.

“But if the last two years have taught us anything, it’s that you can’t rule anything out. Our fundamentals are strong and firms are trying to hire people at record rates. It doesn’t feel like a precursor to a recession.”

Central bankers can’t be honest but perhaps Dr Lowe is being so. In that case he will be wrong again, which would be consistent with his past forecasting form.

When unemployment is so low and inflation high, that is precisely when you should expect a recession as the central bank tightens.

The US is roughly one quarter ahead of Australia in the business cycle and the recession bell is clanging wildly there now. In my view, the Australian version will follow.

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The major difference is that it likely be worse than those that transpire overseas because our household debt is so much higher and a historic house price crash is underway even before rates rise.

In other words, precisely because Dr Lowe doesn’t see a recession coming, it is.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.