This time last year, PIMCO Portfolio Manager Adam Bowe told Livewire that there was a 50/50 chance that Australia would slip into recession. March GDP figures show that the economy grew at just 0.1 per cent, the slowest rate since December 2020.

Today, Bowe says interest rates are sufficiently restrictive, and the chance of recession remains a ‘line ball’. If you look at New Zealand, which is currently in recession, policy rates are materially higher than in Australia. However, Bowe says it is naive to look at the level of monetary policy and imply that policy is easier and, therefore, the implications for growth are less.

“If you look at Australia, 4.35%, you’ve got to adjust for how much debt households run. At every level of interest rates, Australians pay more interest on their debt because they have more debt,” he explains.

"Households in Australia have never paid this much interest as a percentage of their household income. If you add into that tax, the amount of interest and taxes that households pay relative to their income has never been so high."

With the economy only just growing, Bowe believes there is still a chance we slip into recession.

However, there is a silver lining, and as you look further out into the future, he believes the outlook starts to improve.

“The further you look out, we should start to see some tailwinds emerge, just modest tailwinds. We’ve got some tax cuts coming in next quarter in Australia. We think we’ll at least start to see interest rate cuts around the end of the year, and inflation will come down. So that cost of living versus wage growth starts to become a bit more bearable as well,” he says.

Timecodes

0:00 - Introduction
1:53 - How far through the fight against inflation are we?
2:36 - Which countries are leading the pack?
4:16 - US election - why you can’t ignore it
5:36 - Stepping back from the day to day noise
6:55 - Will Australia experience a recession?
9:07 - Interest rates are hurting households
10:34 - The outlook for unemployment
12:17 - Are rates tight enough in Australia?
14:33 - Public versus private markets
17:19 - Opportunities in fixed income
22:45 - A time to be patient
25:10 - What investors are getting wrong about markets right now
26:41 - The tables have turned for fixed income