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Speaker 1: My name is Lily Maddon and I'm a proud Arunda

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Speaker 1: Bungelung Calcuttin woman from Gadighl country. The Daily oz acknowledges

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Speaker 1: that this podcast is recorded on the lands of the

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Speaker 1: Gadighl people and pays respect to all Aboriginal and Torres

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Speaker 1: Strait Island and nations. We pay our respects to the

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Speaker 1: first peoples of these countries, both past and present.

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Speaker 2: Good morning and welcome to the Daily os. It's Wednesday,

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Speaker 2: the fourteenth of June. I'm sam, I'm Zara all. The

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Speaker 2: risk of recession is rising, with experts now warning interest

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Speaker 2: rate rises will crunch the economy. From Bank It's top

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Speaker 2: economists HSBC, they're both putting the odds of a recession

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Speaker 2: at fifty percent. Figures released last week shows Australia's economy

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Speaker 2: has slowed significantly, increasing fears of a recession. Commonwealth Bank

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Speaker 2: is now predicting the likelihood at fifty fifty. TVA journalist

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Speaker 2: Tom Crowley will join us to explain what this all

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Speaker 2: means in today's Deep Dive. But before we get there, Zara,

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Speaker 2: what is making news this morning?

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Speaker 3: A search is underway for a Brisbane woman who is

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Speaker 3: missing in Canadian Bear Country. Julia mary Lane was last

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Speaker 3: in contact with her family over the weekend and was

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Speaker 3: believed to be on a hiking trip at the Bear

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Speaker 3: Lake Trail. Her mother said the warry is there's unstable

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Speaker 3: ground and she's had a fall and there's bears around.

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Speaker 2: Brett Buton. The bus driver who was charged following the

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Speaker 2: deadly Hunter Valley crash, has been released on bail. Under

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Speaker 2: his bail conditions, the fifty eight year old will be

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Speaker 2: required to report to police multiple times a week, surrender

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Speaker 2: his passport, not go within five kilometers of any point

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Speaker 2: of international departure, and remain at home each night unless

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Speaker 2: he is accompanied by a relative. Button will next face

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Speaker 2: court on the ninth of August.

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Speaker 3: A journalist at Radio New Zealand has been placed on

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Speaker 3: leave after it was discovered that several stories about Ukraine

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Speaker 3: had been edited after they were published to be in

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Speaker 3: favor of Russia. Editor in chief Paul Thompson said he

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Speaker 3: was quote gutted and promised to get to the bottom

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Speaker 3: of what happened. An external review of editorial processes is

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Speaker 3: now underway.

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Speaker 2: And Today's Good News Alex Newell and Jay Harrison Gee

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Speaker 2: have become the first two non binary people to win

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Speaker 2: Tony Awards for acting. Newell won Best Performance by an

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Speaker 2: Actor in a Featured Role in a Musical for their

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Speaker 2: role in Shucked, while Gee won Best Performance by an

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Speaker 2: Actor in a Leading Role in a Musical for their

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Speaker 2: role in Some Like It Hot. Welcome back to the podcast, Tom.

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Speaker 2: It would be crazy to think about what the interest

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Speaker 2: rates were when you first joins TDA and where they

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Speaker 2: sit now. It's totally different.

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Speaker 4: Thank you, Sam. It's lovely to be here talking about

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Speaker 4: you guessed it. The economy. It's been I'd say a

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Speaker 4: fairly bad week for the economy. We had an interest

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Speaker 4: rate rise last week. I was reflecting, Sam. I mean,

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Speaker 4: I started at TDA beginning of last year, and I

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Speaker 4: remember some of the early pieces that I did on

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Speaker 4: the economy, and when I came on the podcast, it

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Speaker 4: was all, you know, what's this inflation and interest rates

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Speaker 4: that you know, we're not used to talking about. And

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Speaker 4: there were concepts that a lot of us weren't really

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Speaker 4: familiar with. We're all pretty familiar now with the cost

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Speaker 4: of living crisis and all throughout well over a year

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Speaker 4: of talking about it, Sam, I think that the our

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Speaker 4: word recession has been kind of looming in the background

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Speaker 4: as a possibility that we've mentioned a couple of times.

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Speaker 4: It feels now like we're kind of dangling on the

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Speaker 4: precipice of that a little bit. So I thought it'd

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Speaker 4: be a good idea to come on today to talk

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Speaker 4: a little bit more about that.

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Speaker 2: Yeah, we were talking about a recession then, but fast

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Speaker 2: forward to now and we definitely are. First, I'd love

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Speaker 2: you to explain to me what actually happens during a

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Speaker 2: recession and what that would look like for you and me.

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Speaker 4: Sure, So, a recession is a period where economic activity

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Speaker 4: goes backwards, basically, as simple as that. And economic activity

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Speaker 4: is a measure that we care about because it gives

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Speaker 4: us a general sense of our economic material well being.

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Speaker 4: So we track what we call GDP gross domestic product,

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Speaker 4: which is basically a great, big counting exercise that counts

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Speaker 4: all the activity that happens in an economy, and generally speaking,

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Speaker 4: although it's a much more complicated issue, when GDP goes up,

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Speaker 4: it's a sign that a country on the whole is

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Speaker 4: getting richer, and over time that's been associated with a

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Speaker 4: higher standard of living. On the other hand, when it

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Speaker 4: goes down, it means job losses, it means business closures.

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Speaker 4: It can be a really significant moment of pain for

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Speaker 4: many people in an economy, and so that's kind of

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Speaker 4: why we care about it.

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Speaker 2: Now.

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Speaker 4: We measure GDP in quarters, so three month intervals, and

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Speaker 4: the official definition is that when GDP goes backwards for

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Speaker 4: six months, so two quarters, then we're in a capital

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Speaker 4: R recession. But I mean, the official definition is one thing,

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Speaker 4: but I think it's sort of more useful to just

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Speaker 4: talk about the fact that any period of downturn, any

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Speaker 4: period where economic activity is going backwards, is dangerous and

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Speaker 4: has significant consequences for people. So again, it is jobs

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Speaker 4: being lost, it is business is closing, it is you know,

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Speaker 4: at a time when so many households are feeling the pinch,

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Speaker 4: people are struggling to pay their rent. It's all of

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Speaker 4: those things kind of getting worse at once. That's the

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Speaker 4: lived reality of a recession, and.

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Speaker 2: We've lived through it. I mean, Australia entered a recession

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Speaker 2: during the pandemic and that was not that long ago.

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Speaker 2: But talk to me about what's happened in the economy

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Speaker 2: since then.

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Speaker 4: So, yeah, we did sam go through recession not that

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Speaker 4: long ago, during the pandemic. It was actually our first

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Speaker 4: in nearly thirty years, so the first in your lifetime

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Speaker 4: and my lifetime. You don't have to be an economist

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Speaker 4: to figure out why there was a recession during the pandemic.

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Speaker 4: Of course, we were all locked inside for months. Economic

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Speaker 4: activity was unable to continue in large part, and that's

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Speaker 4: where that recession came from. But you know, back in

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Speaker 4: that time, the government funded a range of economic supports,

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Speaker 4: the job keeper payment, you might remember, and there were

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Speaker 4: other supports to try and shelter the economy through the pandemic.

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Speaker 4: And when we came out the other side of the lockdowns,

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Speaker 4: things rebounded pretty quickly and the news was good, so

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Speaker 4: you might remember for people in Melbourne and Sydney who

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Speaker 4: were in long lockdowns, those you know, that kind of

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Speaker 4: summer where we all went out a lot more and

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Speaker 4: had a lot more money maybe to spend. Those of

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Speaker 4: us who kept our jobs through the pandemic. Spending in

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Speaker 4: Australia and all over the world increased and things were

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Speaker 4: looking pretty good. But then along comes a new disaster

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Speaker 4: in the form of inflation. You know, the story begins

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Speaker 4: with supply disruptions around the world, the war in Ukraine,

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Speaker 4: all of these kind of global events conspired. I mean

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Speaker 4: that all of a sudden, it's much harder for us

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Speaker 4: to get the things that we want. We had shortages

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Speaker 4: of fuel, we had shortages of food. Those things started

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Speaker 4: driving the price up. And the fact that we were

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Speaker 4: all spending a lot more money now that we're out

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Speaker 4: of lockdowns, that drove prices up too. And so in

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Speaker 4: Australia and all over the world, all of a sudden

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Speaker 4: we came out of a recession and the economy was

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Speaker 4: almost running too hot, we were spending too much. Prices

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Speaker 4: started going up, and of course we all know the

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Speaker 4: impact that that has on our cost of living. Now,

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Speaker 4: enter the Reserve Bank of Australia and central banks around

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Speaker 4: the world. Their response to fight this inflation problem and

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Speaker 4: to address the cost of living crisis, that is to

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Speaker 4: increase interest rates. And again interest rates, it's a story

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Speaker 4: we've told plenty of times. The basic idea of interest

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Speaker 4: rates is you make the interest rate higher, you make

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Speaker 4: it more expensive to borrow, you discourage people from spending.

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Speaker 4: So what the RBA is trying to do to fight

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Speaker 4: inflation is to cut our spending. And maybe you can

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Speaker 4: hear in that where the seeds of recession come, because

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Speaker 4: if they cut our spending quite too much, then maybe

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Speaker 4: economic activity starts to go backwards and we do start

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Speaker 4: to tip into recession territory. Now, the RBA has been

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Speaker 4: hoping that it could avoid that, that it could get

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Speaker 4: inflation under control without too many job losses, for example,

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Speaker 4: But we're now in territory where it's starting to look

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Speaker 4: like they may not succeed at that task.

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Speaker 2: It definitely seems like a pendulum swing economically, or a

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Speaker 2: roller coaster. Maybe maybe that's a little more of a

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Speaker 2: volatile metaphor. Okay, And so last week the ABS released

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Speaker 2: up figures which you told us at the beginning of

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Speaker 2: the podcast we need to look out for clues that

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Speaker 2: we're entering a recession. They gave us some data on

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Speaker 2: the first three months of this year.

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Speaker 4: What did we learn, as you say, the first three

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Speaker 4: months of this year, right, So that's the first thing

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Speaker 4: to emphasize. It takes a while for us to actually

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Speaker 4: get this information. So we're only now able to look

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Speaker 4: at what happened in the economy from January March, and

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Speaker 4: the story wasn't great. So we're not officially on the

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Speaker 4: path to a recession because the economy went up by

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Speaker 4: zero point two percent over those three months. But point

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Speaker 4: two percent is not a particularly high result. It was

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Speaker 4: the worst result well since the Delta lockdown, since the

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Speaker 4: COVID recession, but it's also just generally that's a pretty

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Speaker 4: low result. So roughly speaking, you kind of want zo

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Speaker 4: point six point seven point eight for a country like

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Speaker 4: Australia to feel like things are healthy for a quarter,

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Speaker 4: so point two is pretty low. And when you look

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Speaker 4: at it per person, GDP actually fell per person by

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Speaker 4: zero point two percent, so it did go backwards on

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Speaker 4: that measure, reflecting partly the fact that we've had a

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Speaker 4: big influx of migration, a lot of people coming back

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Speaker 4: in and doing jobs, which helps the economy. But when

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Speaker 4: we look per person, things are already starting to look bad.

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Speaker 4: And so yeah, again, I mean, if we're looking for

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Speaker 4: our official capital r recession of six months in a

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Speaker 4: row of GDP falling, we haven't started it yet, but

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Speaker 4: it is fair to say that number was worse than

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Speaker 4: many people had expected it to be and is a

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Speaker 4: sign that already from January to March things were looking

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Speaker 4: pretty sluggish in the economy, and so we don't know

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Speaker 4: yet April, May, June. Exactly what's going on in the

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Speaker 4: economy right now? We don't have those figures in front

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Speaker 4: of us, but it's reasonable to suggest, you know, things

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Speaker 4: have been getting worse since then. We may already be

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Speaker 4: in negative territory.

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Speaker 2: Can I ask Tom? You're speaking a lot about this

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Speaker 2: capital R versus lowercase are recession. Let's say the next

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Speaker 2: quarter does have a in GDP, but of course this

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Speaker 2: quarter hasn't. It's had that point two percent uptick. How

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Speaker 2: important is that technical definition of a recession here?

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Speaker 4: Yeah, it's a good question, Sam, And again I come

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Speaker 4: back to you know, there's the official version of it,

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Speaker 4: but the lived experience already. I think people already recognize

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Speaker 4: that it's becoming a tougher time in the economy. And

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Speaker 4: you know, I think even if we had one quarter

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Speaker 4: where things went backwards, that could well mean that the

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Speaker 4: jobs are lost, the businesses closed. You know, that contraction

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Speaker 4: in economic activity is going to becoming probably at the

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Speaker 4: expense somewhere of someone's job or someone's business. And even

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Speaker 4: a pretty sluggish period like we had in January to March,

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Speaker 4: that's already pretty bad news. And so we want to

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Speaker 4: keep an eye on things like the unemployment rate and

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Speaker 4: you know some of these numbers that we see more

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Speaker 4: frequently than GDP just to sort of keep an eye

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Speaker 4: out for these job losses. But yeah, I mean, as

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Speaker 4: I say, it's already getting pretty hairy, even if we're

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Speaker 4: not quite in Capital r territory yet.

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Speaker 2: Okay, and give me a sense of the outlook. Now,

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Speaker 2: what do the experts think is going to happen for

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Speaker 2: the next three months, But also if you look ahead

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Speaker 2: to the next.

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Speaker 4: Year, it's really up in the air. I think it

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Speaker 4: depends really on how much more interest rates are going

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Speaker 4: to go up. Officially, the RBA and the government are

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Speaker 4: both projecting that we will avoid a recession. But I

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Speaker 4: mean they would say that. Obviously, if the government stands

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Speaker 4: up and says we're projecting that the economy is going

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Speaker 4: to tank, that's not going to be very good for

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Speaker 4: people's confidence. So you don't normally expect the government to

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Speaker 4: actually predict a recession. But it's fair to say that

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Speaker 4: interest rates are the key determining factor here. And you know,

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Speaker 4: again the RBA is looking out at inflation and saying,

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Speaker 4: inflation is this problem that we need to fix, and

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Speaker 4: we're going to do whatever we can to bring inflation down.

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Speaker 4: I think the government is starting to suggest that it

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Speaker 4: hopes the RBA is done, and that maybe it thinks

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Speaker 4: the RBA could just sort of take the foot off

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Speaker 4: the pedal a little bit and that, you know, wait

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Speaker 4: and see the effect of its interest rate rises and

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Speaker 4: not go any further. But yeah, I'd say, if there

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Speaker 4: are another couple of interest rate rises in the next

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Speaker 4: couple of months, everyone will increase the likelihood of a recession.

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Speaker 4: But we're all ready in a territory now where a

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Speaker 4: lot of the kind of private sector forecasters, so Commonwealth

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Speaker 4: Bank and other people who will make their own projections

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Speaker 4: are sort of saying we're at about a fifty to

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Speaker 4: fifty chance of a recession. Certainly, it's getting to the

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Speaker 4: point now where people think it is quite likely.

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Speaker 2: So what I'm hearing from you is that one of

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Speaker 2: the key factors in determining whether or not we're going

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Speaker 2: to enter a recession is interest rates. Interest rates are

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Speaker 2: set by the RBA, so it kind of feels like

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Speaker 2: we're walking into a bit of a predetermined future here.

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Speaker 2: I definitely don't want to get into the territory of

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Speaker 2: RBA bashing, but why would the RBA knowingly walk us

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Speaker 2: into a recession.

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Speaker 4: Yeah, I'm glad you asked that question, Sam, because I reckon,

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Speaker 4: there are people who've been listening to this podcast so

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Speaker 4: far kind of going, why are we having this conversation.

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Speaker 4: How can we possibly be talking about the economy tanking

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Speaker 4: because of what the RBA is doing. Look, there's a

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Speaker 4: really heated debate among economists and experts and everyone about

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Speaker 4: what the RBA is doing and whether it's doing the

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Speaker 4: right thing. I think that what it's important not to

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Speaker 4: lose sight of is how we're all stuck here between

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Speaker 4: a rock and a hard place. You know, this inflation,

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Speaker 4: it came from circumstances outside of our control, the war

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Speaker 4: in Ukraine, all these global factors that hand at us

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Speaker 4: and just about every country in the world, this inflation

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Speaker 4: problem that we have to deal with. We have all

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Speaker 4: seen the impact of that on our own cost of living,

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Speaker 4: and so I don't think anybody needs to be reminded

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Speaker 4: why inflation is bad. The simple reality of it is

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Speaker 4: that you can't get rid of that without some pain

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Speaker 4: for someone somewhere, and certainly you know the RBA, I mean,

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Speaker 4: it has a legal mandate to control inflation. That's what

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Speaker 4: we ask it to do, and it's got one tool

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Speaker 4: to do it, really and that's interest rates. So the

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Speaker 4: RBA is doing what it is required to do, and

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Speaker 4: that falls really hard on people with mortgages in particular,

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Speaker 4: who are doing it really tough because of the interest

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Speaker 4: rate rises. There are other things that government could do.

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Speaker 4: The government could, for example, you know, raise taxes to

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Speaker 4: try and take more money out of the economy and

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Speaker 4: collect more money from people and try and reduce spending

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Speaker 4: in that way. There are the different options that we've got,

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Speaker 4: but they're all they're all painful. And the aim or

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Speaker 4: the hope of the RBA when it started raising interest

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Speaker 4: rates was hopefully we can you know, act quickly and

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Speaker 4: decisively and get this inflation problem under control before things

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Speaker 4: get too far and before we kick the economy into

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Speaker 4: a recession. But from the beginning the RBA said, look,

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Speaker 4: we acknowledge this is an arrow path and history is

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Speaker 4: littered with examples of central banks who have you know,

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Speaker 4: tipped countries into recession trying to fight inflation. So I

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Speaker 4: come back to that rock and a hard place, you know.

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Speaker 4: I won't wait into the debate of whether the RBA

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Speaker 4: has got the balance right or not, but I think

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Speaker 4: that it's it's not an easy problem for us to navigate. Unfortunately,

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Speaker 4: we're in some turbulent waters at the moment.

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Speaker 2: And thanks so much for joining us today, Tom, and

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Speaker 2: thank you for joining us on the Daily OS. If

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Speaker 2: you learn something from today's episode, don't forget to hit

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Speaker 2: subscribe so there's a TDA episode waiting for you every morning.

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Speaker 2: We'll be back again tomorrow. Until then, have an excellent date.