Reasons why Australia won’t have a recession
8 September 2019
As of yesterday, Australia’s Gross Domestic Product (GPD) was at 0.50% for the quarter and stood at 1.40% for the year. It could be viewed that it has been the slowest rate of growth since the Global Financial Crisis or depending on your outlook 28 years of growth without a recession. AMP’s Chief Economist penned this article yesterday which outlined the nine reasons why Australia would not have a recession.
Slow growth but probably not recession Since last year our view has been less upbeat on growth. This remains the case as the housing construction cycle turns down and weighs on consumer spending. As a result, it’s hard to see much progress in reducing high combined levels of unemployment and underemployment, and hence wages growth and inflation are likely to remain low. But there remains a bunch of positives that should help the economy avoid a recession even though growth will remain weak for a while yet.
- Rate cuts and tax cuts should provide some growth boost – while July retail sales were disappointing, the experience from the GFC stimulus payments is that the tax cuts will provide some lift to growth in the months ahead and various retailers have expressed optimism about this recently.
- The threat of crashing property prices looks to be receding – while it’s so far been on low volumes, buyer interest has returned to the Sydney and Melbourne markets and we never saw the much-feared surge in non-performing loans or forced selling. This has helped remove the threat of a debilitating negative wealth effect on consumer spending.
- Infrastructure spending is booming – recent state budgets saw the projected peak in infrastructure spending pushed out yet another year to 2020. And it’s likely states will seek to take even greater advantage of ultra-low long-term borrowing costs to further push out the peak in infrastructure spending.
- The low $A is helping to support the economy – the $A is down 39% from its 2011 high and is likely to fall further and this provides a boost to Australian businesses that compete internationally by making them more competitive.
- The business investment outlook is slowly improving – the big drag on growth as mining investment fell back to more normal levels as a share of GDP is over and mining investment plans are rising. This is driving some pick-up in the outlook for overall business investment.
- Australia has a current account surplus – the June quarter saw the first current account surplus since 1975. The slide since then in iron ore and coal prices suggests it may not be sustained, but the reasons for the improvement are more than just commodity prices so the deficit is likely to be well below the norm of recent decades going forward. What’s more there has been a significant improvement in our foreign liabilities with a less short-term debt and a growing net equity position. This all means that our reliance on foreign capital inflow has declined.
- There is scope for extra fiscal stimulus – the Federal budget is nearly back in surplus and while we have had a long run of deficits our public finances are in good shape compared to the US, Europe and Japan. As a result, there is scope to provide more fiscal stimulus and this is probably more important than a narrow focus on the surplus.
- Population growth remains strong – Australia’s population growth at around 1.6% pa remains strong. Of course, strong population growth is not without issues and in terms of living standards it is economic growth per person (or per capita) that matters. But solid population growth also has significant benefits in terms of supporting demand growth, preventing lingering oversupply and keeping the economy dynamic.
- Finally, cyclical spending (consumer durables, housing and business investment) as a share of GDP remains low – suggesting that apart from bits of the housing market there’s not a lot of excess in the economy that needs to be unwound.
Concluding comment:
Our assessment remains that growth will remain soft and that the RBA will have to provide more stimulus – by taking the cash rate to around 0.5% and possibly consider unconventional monetary policy like quantitative easing. Ideally the latter should be combined with fiscal stimulus which would be fairer and more effective. While Australian growth is going through a rough patch with likely further to go, recession remains unlikely barring a significant global downturn.
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Starting From Scratch - Week 3: Behavioural Finance Watch the video on this page or listen to the podcast on our website, on Spotify or on Apple Podcasts. Listen to the full episode on the FS360 podcast . In the first two weeks of this series we covered the technical side of investing: the different ways to invest (direct shares, ETFs and managed funds), then risk versus return and the main asset classes. This week is about the human side. Even with the right knowledge and a well-built portfolio, the thing that most often derails investors isn't a lack of information. It's emotion. That's what behavioural finance is about: understanding the psychological influences behind our decisions to buy, sell or sit still. And one of the biggest things a financial planner can do for a client is simply keep them in check when emotions start to drive their money decisions. So, what is a bias? A bias is a mental shortcut. It feels logical in the moment, but over time it can lead to poor decisions. Traditional investment theory assumes we're all perfectly rational. We're not. Even the share market itself can be an irrational place. Take a large company that reports earnings slightly below expectations. The share price can fall several percent on the day, even though the underlying value of the business hasn't really changed. Plenty of investors sell on emotion rather than on the numbers. Here are the biases that matter most for people just starting out. Loss aversion: why a 10% fall hurts more than a 10% gain feels good Most of us feel losses more strongly than gains of the same size. It traces back to our fight-or-flight wiring: our first instinct is to avoid danger, and only then to chase reward. In investing, that often shows up as selling during a downturn just to stop the discomfort. We've seen it through the dot-com crash, the GFC, COVID and more recent geopolitical shocks. The trouble is that selling can lock in the loss, and it often leads to risk aversion as well. Having been burnt once, people become reluctant to go near growth assets again. Over 30 years, the gap between someone who stays invested and someone who keeps stepping out of the market is stark. Every time you sell and re-enter, you interrupt the compounding that does the heavy lifting. Recency bias: assuming the recent past will continue This one comes up all the time, and it can apply to nearly anything. Over the past 20 years, the top-performing asset class has very rarely been the same two years running. Last year's winner is not a forecast. The fix is simple, if not always easy: zoom out. You're probably investing for decades, so look at a longer sample than the last year or two. Confirmation bias: finding the evidence we like Almost everyone is guilty of this one if they're honest. Once we've decided something is a good idea, we go looking for reasons to back ourselves up and quietly ignore anything that suggests otherwise. A good antidote is to throw rocks at your idea. Write a list of reasons why you shouldn't do it. If the idea still stands up, that's a good sign. If it crumbles, you've just avoided an expensive mistake. Overconfidence: when an easy win goes to our head Recency bias, confirmation bias and overconfidence are really two pages of the same book. An easy win (a property that rose in value, a share that took off) makes us feel skilled when the market may have done most of the work. We then repeat the approach, seek out information that supports it, and take on more risk than we should. The flip side matters too. Someone who's been burnt before can lose all confidence, and doing nothing can be just as risky as doing too much. Herd mentality and FOMO "Everyone's doing it. Everyone seems to be making money. I'd better jump in before I miss out." That's herd mentality feeding fear of missing out, and social media has turned the volume up. Afterpay and Bitcoin are good examples. Both delivered extraordinary growth for a time, and plenty of people jumped in simply because they were so popular. But the herd doesn't know your goals or your timeframe, and by the time something is everywhere in the news, the best of the growth may already be behind it. Blindly trusting what others are doing, without doing your own research, is arguably one of the riskiest things you can do. Biases aren't always the enemy One of the most useful things to understand is that these biases aren't always bad. Take someone with $80,000 sitting in the bank for a house deposit. Their loss aversion is working in their favour, because a 10% fall in a growth asset could leave them short at settlement. For money you'll need in a year or two, the bank account may be exactly the right place for it. This ties back to Week 2. The same person might hold a superannuation balance invested for growth over decades, while their house deposit sits in cash. Different timeframes call for different strategies. Which is why the most important question isn't what to invest in. It's what you're investing for. How to keep your biases in check There's no way to switch your biases off. We're all human. But you can limit the damage. Build awareness. If you don't know these biases exist, it's hard to do anything about them. Learning to recognise them is step one, ideally before you start investing. Understand the why. Knowing which bias is at play helps you pause before acting. Challenge your own idea. Write the "why shouldn't I?" list. Throw the rocks. Match the money to the goal. Be clear on your timeframe before you invest a dollar. Put some systems in place. Research, automate your investing and diversify so no single call can do too much damage. Get an independent sounding board. Someone with no emotional skin in the game will naturally play devil's advocate better than you can. The last piece of advice: get a second opinion. Even a third or a fourth. Why this matters when you're starting out When your balance is $30,000 or $40,000, a few poor decisions might not feel like a big deal. But over 30 years, the difference between a good call and a bad one is huge. One way to make it tangible: the right decisions at 30 could be the difference between flying business class and flying economy in retirement. Jargon buster Behavioural finance: the study of how psychology and emotions influence financial decisions. Bias: a mental shortcut that feels logical but can lead to poor decisions. Loss aversion: feeling losses more strongly than equivalent gains. Risk aversion: avoiding risk, even when some risk is needed to meet your goals. Recency bias: giving too much weight to recent events. Confirmation bias: seeking information that supports what you already believe. Overconfidence bias: believing your knowledge or ability is greater than it really is. Herd mentality: following the crowd rather than making an independent decision. FOMO: fear of missing out. Homework for the week Write down one or two biases you think you show. They don't have to be about money. Next week What does it actually cost to invest? Brokerage, platform administration fees, investment costs and super fees, and how to compare a platform with a broker account. ------- Mentioned in the episode is Danny Archer's previous episodes on Behavioural Finance - these can be listened to on Apple, Spotify or here on our website - they are Episodes 58 and 61 of the FS360 Podcast by M Group. This article contains general information only and does not take into account your personal objectives, financial situation or needs. Speak to a licensed financial adviser before making any investment decisions.
Investing Starting From Scratch: Our Financial Planners talk about investing in an informative Podcast format. Watch on video on our website and YouTube channel.
Investing Starting From Scratch: Our Financial Planners talk about investing in an informative Podcast format. Watch on video on our website and YouTube channel.
This seminar was held in the M Group Sunshine Coast office on October 1st 2026. We welcomed clients into the room and now here on YouTube to listen to Financial Planners Kym Vivien and Jack Toohey speak, along with Accounting Director Jodie Thompson and our special guest Jonathon Tolub from our Share Market research partner Investsense. ----------------- Trends Shaping Your Wealth + Federal Budget Key Insights. We will be joined by InvestSense, M Group’s dedicated investment research partner, who provide independent research and insights into investment markets and assist with the construction and management of client portfolios. Our seminars aim to be informative and insightful for our valued clients. You can watch the entire seminar here:
