Australia ‘should avoid’ recession: Pepper Money CFO

Speaking at the Pepper Money Insights Live event on Wednesday (26 July), non-bank lender Pepper Money chief financial officer (CFO) Therese McGrath outlined some positive signs that Australia “should avoid” a recession later this year.

Ms McGrath stated the low unemployment rate of 3.5 per cent is one of the key signs that the country may remain above positive GDP growth.

“We continue to have such low unemployment and very high participation rates. That means people have money coming in the door,” Ms McGrath said.

Australia’s recent migration boom – which has seen overseas net migration attributing to 387,000 people entering the country in the year ended 31 December 2022 – should bode well for growth, according to Ms McGrath.

Having people coming in stimulates demand and stimulates growth, and with our unemployment being so low at the moment, it’s impacting productivity,” Ms McGrath said.

“Getting people back into the country and getting back to growth is a positive thing.”

Furthermore, with China reopening, Australia should see an influx of international students, who contribute 1 per cent to the GDP, according to Ms McGrath.

However, she warned that although Australia should avoid a recession, the landing might be “bumpy”, with a lack of productivity being one of the negative things to look out for.

”We are at zero productivity in Australia. To be a developed nation, we need to reach that 1 per cent growth” Ms McGrath said.

“Productivity is the one big thing you're going to hear from the Reserve Bank of Australia (RBA) that is holding the country back.”
Speaking on inflation, Ms McGrath stated inflation has proved to be persistent and while goods inflation is coming down, spending on services is what’s fuelling inflation.

The latest quarterly inflation data released by the Australian Bureau of Statistics (ABS) has revealed encouraging signs of moderation as the Consumer Price Index (CPI) data for the second quarter ended June 2023 revealed a 0.8 per cent increase in inflation for the quarter, contributing to an annual inflation rate of 6 per cent.

This second consecutive quarter of lower annual inflation (following the 7.8 per cent peak in December 2022) has signalled “disinflation” and has encouraged some economists to soften their cash rate estimates ahead of the RBA’s monetary policy meeting on 1 August.

[RELATED: CPI data points towards cash rate hold: Economists]