Australia Predicted To Go Into Recession In 2016; RBA Governor Says Recession 'Unlikely'

Australia’s chances of heading towards a recession has increased with top bond manager BT Investment Management, expecting the Reserve Bank of Australia to reduce rates below one percent. BT declared there was a 50 percent chance that Australia will go into recession in the next couple of years.

Vimal Gor, BT Investment head of fixed income based in Australia, said the RBA will cut its target rate by 50 basis points to 1.75 percent. He said the Australian dollar may fall below 60 U.S. cents. The Australian Financial Review reported that Australia continues to avoid recession for more than 20 years due to the China-driven commodities boom.

However, Gor said there was a “decent chance” Australia would go into recession. He said, he foresees the Australian economy taking two possible paths, in the first one, Australia can “muddle through” with another 50 basis points of rate reductions if the property market holds up and the export prices, relative to imports “don’t get too much worse.”

Following BT Investment Management’s prediction, expert strategist Gerard Minack warned that Australia has a one in three chance of going into recession in 2016. Goldman Sachs chief economist Tim Toohey also said the country will be heading in that direction in the coming year.

Minack predicted Australia to experience lower growth and cash, more currency adjustments and a weaker market. He said the mining boom may have boosted Australia’s income but not productivity. The strategist reiterated that there was a 25 to 33 percent chance that the country will go into recession in the next 12 to 18 months.

RBA governor Glenn Stevens has previously said Australia is likely avoid recession even if the mining boom fades, reported Sky News. The last time the Australian economy fell into recession was during the 1980s and early 1990s, after reaching the peak in commodity prices. The governor added, he remains confident that Australia will not repeat history.

Iron ore and coal prices have fallen in recent months and investments in the resources sector has slowed down as a result. The RBA governor said the declining Australian dollar can help the economy weather the downturn in the resources sector.

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