Thursday 29 September 2022 01:38 AM How Australia could perform another economic miracle and avoid a recession trends now

If the experience of the past two decades is any guide, Australia could avoid a recession even during a time of global economic uncertainty.

And the extent of interest rates in 2022 and 2023 could determine whether Australia's economy keeps growing without interruption, even as borrowers face the most severe pace of increases in almost three decades.

The Covid lockdowns of 2020 marked Australia's first recession since 1991.

But in between, Australia avoided going into a technical recession, twice, even as the U.S. did - with the downturn defined as two or more consecutive quarters of gross domestic product shrinking.

That meant Australia's economy continued to grow, with only one negative quarter in 2008, even as the United States suffered a recession from 2007 to 2009 during the Global Financial Crisis.

Australia also avoided a recession in 2001 as the bursting of the dot-com tech bubble plunged the U.S. into recession, just four years after Australia weathered the Asian Financial Crisis of 1997.

The pattern is widely expected to be repeated again in 2022 and 2023 even as the US, the world's biggest economy, most likely goes into a recession again.

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That's because the United States has a worse inflation problem than Australia, despite inflicting even more intense interest rate increases on borrowers. 

While the Reserve Bank of Australia has raised interest rates five times since May - from a record-low of 0.1 per cent to a seven-year of 2.35 per cent, the US Federal Reserve has been even more punitive.

The Paris-based OECD is expecting Australia's cash rate to rise to an 11-year high of 3.6 per cent by 2023 - with borrowers already copping four larger 0.5 percentage point rate increases since June.

But it is expecting the US Fed to keep rising its target interest rate from an existing 14-year high of 3 to 3.25 per cent to a 16-year high of 4.5 to 4.75 per cent in 2023.

Since June, American borrowers have copped three mega 0.75 percentage point rate rises.

US Fed chairman Jerome Powell admitted aggressive rate increases in the US could spark a recession last week.

'No one knows whether this process will lead to a recession or, if so, how significant that recession would be,' he said.

'We have got to get inflation behind us. I wish there were a painless way to do that.

'There isn't.'

By comparison, Reserve Bank of Australia governor Philip Lowe this month told a parliamentary hearing in Canberra interest rate rises that were too harsh would spark a recession.

He is keen to avoid that with borrowers already facing the most severe increases since 1994.

'My judgement and the judgement of most of my colleagues is that that would be incredibly contractionary for the economy and would throw us into a sharp recession,' he said.