Will the RBA choose a recession for Australia?

The Central Bank can, if it wishes, dispel rumors that the recession will end, writes Stephen Koukoulas. The absence of this is a serious concern.

RECESSIONS bad news.

For the vast majority of economists, these are an economic hammer blow that has caused tens of thousands of businesses to fail and close, causing hundreds of thousands of people to lose their jobs and spreading uncertainty and human misery across the country.

Good economists know that recessions should be avoided at all costs.

It seems like such an obvious thing to say, but it is a sad reflection for many in the economics profession that some of it is true. proponent of recession In the current environment of rising global oil prices and a somewhat disturbing rise in inflation.

Lessons learned from past recessions

Lessons learned from past recessions in the 1980s and early 1990s have emerged over the past two decades in a generally bipartisan approach to economic policy at a time when recessions seemed inevitable.

Australia managed to avoid the global financial crisis of 2008-2010, when almost all industrialized countries fell into recession. This was done through major cuts in interest rates, a series of fiscal support measures for the banking system, and some fiscal policy stimulus from the government largely aimed at the household sector.

While a recession could not be avoided with the COVID pandemic in 2020-2022, similarly aggressive easing of interest rates, liquidity and financial support for banks and businesses, as well as a number of fiscal policy measures ensured that the economic downturn was short-lived and the increase in the unemployment rate was well contained. It was a short, sharp recession.

The policy approaches in both periods were well-directed and successful, and continue to provide a template for when the economy appears headed for the next recession.

Where are we now?

Recession rumors are increasing in Australia.

The fact that recessions occur now spoken by reliable economists The aftermath of the global oil shock and the Reserve Bank of Australia’s currently oppressive interest rate adjustments suggests that much has gone wrong with the economy.

Signs of an increasing likelihood of recession in Australia are beginning to emerge, although they are still vague and limited.

After the economy completed 2025 on a positive note, annual GDP growth stood at a healthy 2.6 percent, the unemployment rate declined, and indicators such as the stock market reaching record levels in February 2026 are now starting to give worrying signals in the Australian economy.

While much of the data does not yet reflect any impact of the oil price shock and previous aggressive interest rate hikes, some housing data on consumer confidence and tender approval rates are bleak. House prices are falling in the two largest cities, Sydney and Melbourne. The stock market is volatile but has been trending generally downward in recent weeks.

Most recently Roy Morgan ANZ measure of consumer confidenceThe index, which includes the impact of the oil price shock, fell to its lowest level in 53 years last week.

This is an extremely dire outcome for those concerned about the course of the economy.

Compared to now, Australian consumers were more optimistic about the economy at the worst point of the recession in the early 1980s, the Asian economic crisis of the late 1990s, the tech wreck and increased terrorism activity in the early 2000s, the Global Financial Crisis of 2008-2010 and even at the pessimistic point of the COVID pandemic.

To reiterate, the current level of consumer confidence is extraordinary.

This is important because when consumers are pessimistic and undeniably worried about their finances, their jobs, their retirement, and other investments, they have a strong tendency to drastically cut back on their spending.

These are the seeds of stagnation.

What can be done?

Economic recessions are ultimately the choice of policymakers.

If it wanted, the RBA could eliminate recession talk altogether.

While clearly concerned about inflation, the RBA could provide support to the economy if it chooses to cut interest rates – plain and simple. Just like during the GFC and Covid Pandemic.

If it keeps monetary policy tight, or worse yet, tightens monetary policy even further with more interest rate hikes, it could flirt with recession and drag the economy into a ditch.

A recession in 2026 and 2027 is at the disposal of the RBA and its interest rate settings.

Of course, this will mean inflation will remain high for longer, but ultimately the choice now evolving for policymakers is whether to add a few hundred thousand people to the ranks of the unemployed through the increased risk of recession, or whether to register a temporary period of above-target inflation.

It’s that simple.

Stephen Koukoulas is the former chief economist of Citibank and senior economic advisor to the Prime Minister of Australia. You can follow Stephen on Twitter/X @TheKouk.

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