Will Oz's recession last?

 I talked here about how all the various "PMI" surveys in Australia are falling, and how this prolly means that Australia is already in recession.

What I've done below is to combine all series into a single indicator.  You can see the plummet during COVID in 2020, the strong rebound after, and then a renewed plunge when there was a second lockdown in 2021.  Then the economy slowed as the rebound faded and as Australia's Central Bank, the Reserve Bank of Australia, tightened monetary policy.

We started a new recovery in 2024, but this faltered late last year as the RBA raised rates, and went into free fall with the Iran War.

The chart below shows the relationship between the economy (as represented by the combined PMIs) and the Reserve Bank's "cash rate".  Because I've plotted the RBA's cash rate (which is equivalent to the Fed Funds rate in Australia) inverted, when the blue line rises on the chart, the cash rate is falling on the chart, and when it falls, the cash rate is rising.  The two move in sync except for the COVID crash, when what economists call an "exogenous factor" caused the economy to plunge.  Note that interest rates aren't the only factor shifting the AU economy up or down.   For example, in 2019 (before COVID), the economy slowed because of a slowdown in the world economy.  A tentative recovery had begun, here and overseas, when COVID hit (January 2020).

So, if the RBA doesn't raise rates again, will the economy start to recover?  It's possible.  But remember, the world economy is likely to slow, even if there is a "ceasefire" in the Iran war.  A return to normal will take months, and uncertainty will continue to hamper those famous "animal spirits".  And some countries/regions, in particular, Europe and Indonesia, have already raised interest rates because of soaring inflation.  Indeed, the RBA may yet do the same thing as Australia's inflation accelerates.  And that will slow growth.

My best guess:  growth will slow further for a few more months.  Interestingly, all the growth in Q1 was from investment in AI data centres.  If that bubble bursts, we'll all be in serious trouble.

Happy days.