Australian economy faces trio of shocks, recession risk rises

Australia’s annual GDP grew 2.5 % but the March‑quarter figure slipped to just 0.3 %, well below the 0.9 % growth recorded in December. HSBC chief economist Paul Bloxham warned that “GDP is likely to contract in Q2” and highlighted a rising risk of two consecutive quarters of negative growth, a technical recession. Economists point to three overlapping shocks: the Reserve Bank of Australia’s three back‑to‑back interest‑rate hikes, the impact of the Middle‑East conflict on trade and oil prices, and a budget that could weaken housing prices and turnover.

Per‑capita GDP fell 0.1 % – the first decline since March 2025 – while productivity dropped 0.6 % over the quarter. Inflation remains well above target, and forecasts suggest unemployment could edge close to 5 % by 2027. AMP deputy chief economist Diana Mousina cautioned that even without an official recession, a “per‑capita recession” could weigh on households. The combined pressures are expected to keep household spending flat in 2026 and erode real wages.

These developments signal heightened economic vulnerability as consumer sentiment weakens and the term‑of‑trade shock from higher oil prices persists.