*Subscribe and 🔔: | Australians are being warned another interest hike by the RBA could send the economy into a recession, as investment portfolio manager Jun Bei Liu discusses.

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The Australian economy is currently treading on thin ice, with many experts warning that another interest rate hike could be the tipping point that sends it spiraling into a recession. With the Reserve Bank of Australia (RBA) aiming to normalize interest rates, the risks associated with increasing rates too quickly cannot be ignored.

As economic indicators hint at a slowdown, the RBA’s decision to increase interest rates could prove disastrous. The housing market, a cornerstone of the Australian economy, is already showing signs of weakness. Home loan growth has slowed down considerably, and property prices in major cities are starting to decline. Another rate hike could further dent consumer confidence and dampen spending, leading to a deeper slump in the housing market.

High household debt is another concern that makes an interest rate hike a precarious move. Australians have some of the highest levels of personal debt globally, with many relying heavily on credit cards and mortgages. Increasing interest rates would increase the financial burden on households, potentially leading to defaults and bankruptcies. This, in turn, would have a cascading effect on the broader economy, causing a decline in consumer spending and hampering business growth.

Small businesses, the backbone of the Australian economy, would also face significant challenges if interest rates were to rise. Many small businesses operate on thin profit margins and rely on readily available credit to sustain growth. A rate hike could increase borrowing costs for these businesses, making it harder for them to invest, expand, and create jobs. A slowdown in the small business sector would further exacerbate the risk of a recession.

Internationally, the Australian economy is also facing headwinds. Global trade tensions, particularly between the United States and China, could have a profound impact on Australia’s export-dependent industries. In the event of a full-blown trade war, Australia could see reduced demand for its commodities, resulting in job losses and economic contraction.

To mitigate these risks, the RBA must exercise caution when considering any future interest rate hikes. While the central bank may be eager to normalize rates and avoid the creation of asset bubbles, a premature increase could cripple an already fragile economy.

Instead, the RBA should focus on other measures to support economic growth. Fiscal policies aimed at stimulating investment, infrastructure development, and technological advancements could create a more conducive environment for businesses to thrive. Simultaneously, increasing government spending on education and upskilling programs would enhance the resilience of the labor market and improve productivity.

It is clear that the Australian economy is at a critical juncture. The risks associated with another interest rate hike cannot be ignored, as it could potentially push the economy into a recession. The RBA must exercise prudence and consider alternative policies to support growth and stability. A delicate balance between normalizing interest rates and safeguarding the economic well-being of the nation must be struck to avoid a calamitous outcome.