With interest rates rising, house prices starting to fall, the stock market down 13% year-to-date and even Australian Super reporting a negative financial year return of 2.7%, you’d think we’d be a chance of a recession here. This is especially so when you know a lot of US economists and stock market experts say the Yanks are already in one. But when it comes to Australia and the R-word, you might need to think again!

I know the population is really scared for the economy because I have financial planning clients who are continually expressing their concerns. Clearly, they want to talk to us when they’re nervous. They can only get that way by absorbing all the bad news in the media, which, to be fair, is there, and it’s their job to report it.

That said, why didn’t any outlet other than the AFR reveal that 32 out of 32 economists don’t see us falling into recession over the next two years? That’s huge and should be heralded from the rooftops, just as our stock market’s fall is only 13% (i.e. a correction) while the US stock market is down more than 20%, which is a bear market.

This is better news than what you’ve heard lately from yours truly comes as Reserve Bank Governor Dr Phil Lowe is set to scare us all again today with another 0.5% cash rate rise, which will help him beat down inflation.

But this puts me in a dilemma.

You see, Dr Phil needs to scare you. I want you to be scared too because this will slow down your spending and potentially reduce inflation faster than if you’re not future-frightened. In turn, this pull back on spending (i.e. demand that can lift inflation) would reduce the number of interest rate rises the RBA has to heap on us, which could help us dodge a recession.

On top of that, fewer interest rate rises than have been predicted (by the most negative economists and relayed to us via the media) would help the stock market recover. This then helps confidence via the wealth effect. It also could mean the fall in house prices doesn’t have to be 30% as some have predicted but a more tolerable 15% or so pullback.

What I’m talking about is a soft landing for the economy rather than a hard landing recession, and it has to be greeted with positivity that 32 out of 32 economists surveyed by the AFR can’t see a recession happening.

A recession kills jobs, pumps up unemployment, hits profits, creates bankruptcies and drives stock and house prices down, which then drives up the Government’s budget deficit. Therefore, a recession needs to be avoided at all costs and underlines how important Dr Phil’s job is to give us the right number of rate rises that brings inflation down while not creating a recession.

Dr Phil needs a win after being caught out by his prediction that rates wouldn’t rise until 2024. That was a wrong call, which was OK to make in the depths of the Coronavirus lockdowns when a recession (maybe even a Great Depression) was on the way. That call created confidence, but he should have been pulling back from that call earlier than he did. Some people who borrowed and bought properties at too high prices could argue he hoodwinked them.

That’s water under the bridge, but Dr Phil can rescue his reputation if he gets this interest rate manoeuvre right and avoids a recession. It’s comforting that all Aussie economists think he’ll do exactly that.

By year’s end, most economists see inflation at 4% or 5%. By June next year, 30 out of 32 are tipping inflation will be under 5%. And 16 of them have a number under 4%! I hope they’re right!

On what will happen to interest rates, is where the economists get a little scary in their forecasts. By year’s end, most see the cash rate at 2.25-2.6%. Given we’re at 0.85% (it should be 1.35% after today’s rise), if these professional economy-guessers are right, rates could go up another 1% by Christmas (after today’s rise).

I think these calls are a tad over-the-top. I like the predictions on the cash rate from these three economists the best:

Former ANZ chief economist Saul Eslake, Katrina Ell from Moody’s Analytics and former Labor Minister and respected economist Craig Emerson of Emerson Economics are tipping a cash rate under 2% (1.85% for Saul, 1.75% for Katrina and 1.5% for Craig!).

I really hope Craig’s right because that will be a great help for us to avoid a recession. The higher that cash rate goes in a short period of time (e.g. the rest of 2022), the more likely borrowers will be so scared they’ll go on strike with their spending, which could create a recession.

By the way, if you’re so scared that you want to go to cash or other safe assets, note these things:

1. After the Coronavirus crash in 2020, the market rebounded 40% in a year!
2. After the GFC crash in 2008, from 6 March 2009 to 9 April 2010, the rebound was 54%!

Going to cash or other low-returning assets might mean you’ll lose twice — once on the way down and then on the way up.

If you invest in stocks and you’re in quality companies, the old saying “no guts, no glory” is relevant.