The Reserve Bank of Australia (RBA) has eased fears of a recession, stating that the economy is still expected to grow even if global oil prices rise sharply.
RBA Governor Michele Bullock said the central bank is closely monitoring high inflation at both global and domestic levels, which has been worsened by ongoing conflict in the Middle East. These factors will influence future interest rate decisions.
She noted that inflation remains persistent, but added that three recent interest rate hikes this year are beginning to show early positive effects in the economy. However, she warned that it could take one to two years for the full impact of tighter monetary policy to be felt.
With economic growth slowing, unemployment rising, and inflation still high, concerns about a possible recession have increased. A recession is typically defined as two consecutive quarters of negative economic growth.
An Oxford Economics report released in April suggested Australia could face a sharp recession if conflict in Iran continues for a long period, leading to higher oil prices and global inflation.
Despite these risks, Bullock said the Australian economy is still expected to grow modestly, even in severe scenarios involving sustained conflict and higher energy prices. She pointed out that investment remains strong, particularly in sectors such as software, data centres, and renewable energy.
Her comments were seen as a response to earlier concerns that Australia could be heading toward a recession, even though she previously acknowledged that the conflict in Iran presents a global economic risk.
Treasurer Jim Chalmers also said the war is putting pressure on the economy but rejected claims that Australia is heading into a recession.
He added that Australia’s economy has grown faster than several other advanced economies, including the UK, Canada, Germany, and Japan.
He said that while challenges remain, the economy has strong underlying foundations and is proving resilient amid global uncertainty.