Next week’s release of the March quarter GDP figures will spotlight Australia’s ongoing economic challenges. However, the question of whether the country is heading into a recession remains nuanced.

Australia’s economy grew by just 0.1% in the final quarter of 2023, a modest figure that raises concerns. Revisions to this data could potentially show a contraction, and if the March quarter also shows a decline, it would signal a recession. Recent commentary has focused less on GDP and more on the rise in unemployment, invoking the “Sahm rule” for recession forecasting.

This rule, developed by economist Claudia Sahm, suggests that a rise in the unemployment rate of 0.5% within a year typically precedes a recession. Currently, Australia’s unemployment rate has increased by 0.49%, approaching this threshold. While the Sahm rule highlights potential recession risks, it is important to note that the impact is more pronounced among younger workers, who often face layoffs first.

Breaking down the data, it appears that while younger workers are experiencing job losses, employment for prime-aged workers (25 to 64 years old) remains relatively stable. Full-time and total employment in this group has grown by about 3% over the past year, which is not characteristic of a recession.

However, the number of hours worked, particularly among men aged 25 to 64, is declining. This decline, coupled with weak overall economic growth, suggests that while Australia may not be in a recession, economic conditions are challenging. The Reserve Bank is likely to consider further interest rate cuts to stimulate growth, and the government’s tax cuts and energy rebates are aimed at boosting household spending to counteract economic slowdowns.

In summary, while Australia is not currently in a recession, the rising unemployment rate and declining hours worked indicate economic pressures that warrant continued monitoring and potentially further policy adjustments.