Australia Recession Risk Rises as RBA Seen Hiking More Than Fed

     There is now a one in three chance that there will be a recession in Australia in the coming 12 months. The updated probability came after a jump in inflation that has pushed the Reserve Bank of Australia (RBA) to continue hiking rates for longer than expected. Traders in Australia are now pricing in four more interest rate hikes, while the Federal Reserve is expecting only three more hikes. In comparison to the Federal Reserve, RBA started its tightening two months after the Fed and moved less aggressively because it thought once the supply chain was fixed so would the economy. Not only did the RBA start two months later than the Fed, but they also downshifted to 25bps increases in October while the Fed was still increasing by 75bps. Another reason the RBA moved less aggressively is that the job market was so strong, and they didn't want to weaken the market, but now they need to start acting aggressively while the job market is becoming weak. 

    Problems could arise in the housing market as well in Australia. In the USA, most home buyers take out a 30-year mortgage to help protect them from changing interest rates. In Australia, most home buyers take out a variable rate mortgage which floats with the RBA rates. This could lead to issues with defaults and other problems, especially with unemployment on the rise. With the higher interest rates, people will be less likely to purchase new homes, further impacting the housing market. 

    Australia does have a slight economic impact on the rest of the world and could cause a ricochet effect of economic issues if they plunge into recession.

https://finance.yahoo.com/news/australia-recession-risk-rises-rba-180000084.html