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Bendigo Bank warns of real ‘risk of technical recession’ 

The bank’s chief economist has warned that the economy will face a challenging period ahead.

Bendigo and Adelaide Bank’s chief economist David Robertson has flagged “clear signs” that the economy is slowing and that Australians should prepare for a challenging period ahead.

In his final economic update for the year, Mr Robertson said that while the Reserve Bank of Australia (RBA) provided a reprieve for borrowers in its most recent rate call, he warned that “another increase in 2024 can’t be ruled out just yet”.

Mr Robertson stated: “As 2024 approaches with a welcome pause in RBA hikes, and clear signs that the economy is slowing, there’s no doubt we’re in for a challenging period ahead.

“The December RBA no change policy decision and associated comments were as expected and maintained the tightening bias, but did add weight to a rates on hold scenario – potentially for all of 2024. Another hike to 4.6 per cent can’t yet be ruled out and will be dependent on quarterly CPI data out in late January and then in late April, but equally rate cuts will need a lot of progress with inflation to materialise.

“The latest GDP numbers show the economy is quickly decelerating, with real GDP only rising 0.2 per cent in the third quarter. Household consumption and savings rates continued to slow and only public demand and capital investment kept the economy growing last quarter.”

Reflecting on the statistics, Mr Robertson warned that “the risk of a technical recession is still real”, particularly following “the November rate hike and the likely easing in population growth next year”.

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He added that while the strong labour markets had been protecting households from the slowdown, the lender forecast a sharper rise in unemployment in the coming year, up to above 4.5 per cent by midyear, greater than the RBA’s prediction of 4.2 per cent.

Mr Robertson commented: “Further economic data to be released in coming months is expected to show a similar theme – higher interest rates on top of cost-of-living crisis slowing the economy down, suggesting further RBA hikes may be unnecessary.

“The key for the RBA here in Australia is how quickly inflationary risks subside.

“For the RBA to cut rates, they will need to be convinced the target of 2.5 per cent is both achievable and imminent. Goods inflation is likely to be around that target relatively soon, but core services inflation may need all of next year to normalise.”

[Related: Bendigo ramps up preparations for broker launch]

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