Treasurer Jim Chalmers has dismissed concerns about a potential recession following a significant drop in the Australian stock market that wiped out over $100 billion.

On Monday, Australian markets suffered a steep decline of 3.7%, marking the largest one-day drop since the COVID-19 pandemic. However, by Tuesday, the markets showed some recovery, gaining 0.41%.

When asked if this market turmoil signaled that Australia was on the “brink of a recession,” Dr. Chalmers responded that the government does not expect the economy to contract. “We’re not anticipating our economy will go backwards. It’s not the expectation of the Treasury or the Reserve Bank,”

He emphasized the importance of the government’s fiscal decisions, noting that global economic uncertainty is a key factor behind their budgetary choices. “It’s not our anticipation that we will see a recession here, but there is a lot of global economic uncertainty, and that’s why it’s so important that we’ve taken the right decisions in our budgets for the right reasons.”

Recent GDP data shows that real GDP grew by 0.2% in the March 2024 quarter. The Australian Bureau of Statistics is set to release the next round of economic data on September 4.

Dr. Chalmers also highlighted the distinction between the stock market and the broader economy. “The economy and stock market are related, but they’re not the same thing,” he explained. He pointed out that both the Reserve Bank and Treasury’s inflation forecasts have improved, attributing this to the design of the government’s cost-of-living policies.

Reserve Bank Governor Michele Bullock echoed Dr. Chalmers’ sentiments, expressing confidence that Australia is not heading for a recession. She noted that the RBA is carefully balancing efforts to curb inflation while still supporting economic growth.

Ms. Bullock’s remarks followed the RBA’s decision to maintain the cash rate at 4.35% on Tuesday, citing persistent inflation. Although she didn’t rule out future rate hikes, the RBA’s August Statement of Monetary Policy suggests that inflation will gradually decrease, with a forecasted drop to 2.8% by June 2025.

Although we may not be going through a recessionary period, there will be hightened volatility in the market over the next few months, as you hear speculation over the market movements and economic conditions. As we saw on Monday, with a drop of 3.7%, volatility will play a big factor in portfolio’s in the next 3-4 months, which highlights the importance of a sound financial plan, investing into core, value stocks, that perform through a myriad of economic conditions, and sticking to a core portfolio plan to avoid making rash decisions when faced with increased volatility.

If you have any questions about anything discussed in this article, do not hesitate to reach out to Cadre Capital Partners.