Rising risk of recession

The 0.5% q/q fall in GDP in the third quarter and the weak tone of October’s international trade data have raised the chances that Australia will experience its first recession in 25 years. We wouldn’t completely rule out the possibility of a second consecutive quarter of falling output in the fourth quarter, but our current forecast is that GDP grew by 0.3% q/q. In any case, a recession at this stage would probably be short and shallow and is unlikely to lead to a surge in unemployment. There’s no escaping the fact, though, that the outlook has weakened.