Over the last week, concerns about a possible recession in Australia have been running rife following the tariffs imposed by Trump on Australia and the ongoing trade war between the US and China. So, what is a recession and are we likely heading into one? Let’s find out.

Recession, what is it and what does it do?

A recession can be defined as a prolonged period of negative economic growth in a particular country. A typical indicator of a recession is when a country experiences two consecutive quarters of negative real GDP growth. A recession can be caused by a wide variety of factors, including supply chain disruptions, economic shocks and world events. Even inflation can cause a recession, as banks typically raise interest rates during an inflation, with the purpose of slowing down the economy.

The most serious effect of a recession is the rise in the unemployment rate. Additionally, during a recession, people tend to be extra careful with their spending, a precautionary measure in the event they become unemployed. Many individuals and businesses are also unable to repay their loans. Investments made by business are usually low and it is not unusual to see many businesses close down during a recession.

A Recession in Australia? Yes? No?

Trump’s recent tariffs and China’s retaliation has opened up the floodgates of concerns regarding a recession. As mentioned in the previous week’s article, Australia is likely to feel the indirect effects of the tariffs. China is one of Australia’s largest trading partners and with the trade war heating up between China and the US, the concern of a recession in Australia has been amplified. Coupled with the falling currency and share markets, and the prime minister refusing to rule out the possibility of a recession in the country, there is definitely cause for concern.

However, many economist have assured the public that a full-blown recession in Australia is unlikely but there are concerns of slower economic growth in the country. NAB has predicted that the RBA is likely going to cut interest rates by 50 basis points to 3.6%. This was further supported by Deutsche Bank Australia chief economist Phil O'Donaghoe who warned that Australia was at the risk of slipping into a recession if the RBA does not cut interest rates aggressively. But he warned that cutting interest rates will bring its own set of problems including changes in consumer decisionsq, hiring and firing decisions by employers and a potential rise in unemployment.

Dr Luke Hartigan, lecturer at the University of Sydney and a former Reserve Bank economist argues that the falling currency can actually be a good thing as it makes exports more competitive, supporting incomes in the process.

Closing Thoughts

Even though the chances of a recession in Australia is low, it is not something that is out of the realm of possibility. The effects of the exorbitant tariffs placed on China by the US, currently sitting at a whooping 145% will most certainly be felt here in Australia. With China imposing its own retaliatory tariff on the US, sitting at approximately 125%, the chances of the trade war easing up anytime in the near future remains low.

Even if the Australian economy does not go all the way to a recession, economic slowdown can also have damaging effects on the lives of everyone, including us, university students. A recession or economic slowdown can make it harder to secure graduate roles and even part-time jobs. The cost of living can also increase drastically. Whether or not Australia enters a recession, now is the time to stay informed — because what’s happening globally could shape your financial future here at home.