It's Official. Australia Is Back in Recession | What Happens Next Will Shock Everyone. [APS083]

I didn't see this coming. Australia had already emerged from the economic downturn earlier this year. Sure, GDP growth was sluggish, but at least it was showing some signs of recovery. But the latest numbers? They've completely shattered that hope. Australia's economy has been dragged right back to square one. In the first quarter of this year, we've officially fallen back into a per capita GDP recession.

And in response, a lot of people have been asking me, What does a per capita recession mean for interest rates in Australia? Could this drag down the property market and bring an end to the short-lived national price rebound we've just started to see? Are we already entering a new downcycle?

Australia Is Back In a Per Capita GDP Recession

When we talk about a technical recession, we're usually referring to a situation where a country's GDP contracts for two consecutive quarters—six straight months of shrinking national wealth. This type of recession often brings serious consequences: rising unemployment, business closures, widespread loan defaults, frozen credit from banks, and stock market crashes.

We're all familiar with some of these major downturns in history—like the Great Depression of 1929, the oil crises of the 1970s and '80s, the dot-com crash in 2000, and the Global Financial Crisis in 2008. Each of them delivered devastating blows to the economy. But Australia has long been seen as a lucky country—one that, historically, has managed to dodge many of these major recessions.

Since 1991, Australia enjoyed 30 years of uninterrupted economic growth. Even during the 2008 global financial meltdown, Australia was the only major developed country that managed to avoid a technical recession. It wasn't until the pandemic hit in 2020 that Australia officially entered recession for the first time: GDP fell by 0.3% in Q1 of 2020, and then plummeted 7% in Q2. Other than that brief period, Australia has largely avoided recession.

From that point up to now, nearly every single quarter has shown GDP growth. On the surface, the economy looks strong and healthy. But when we zoom in—on a per capita basis—we get a very different picture.

According to data from the Australian Bureau of Statistics, in Q1 of 2025, real GDP rose by 0.2% quarter-on-quarter and by 1.3% year-on-year. But per capita GDP actually fell by 0.2%, turning negative again after a slight 0.1% uptick in Q4 of 2024. This means Australia has once again entered a per capita recession.

In fact, during the second half of 2024, Australia had just emerged from 21 consecutive months of per capita GDP decline. And now, in early 2025, it's back. Any signs of a fragile economic recovery have now vanished overnight. So the question is: If the overall economy is growing, why is per capita GDP shrinking?

One of the most important reasons—is immigration. To avoid falling into a technical recession, Australia brought in a massive number of new migrants. But when these newcomers arrive, they don't instantly contribute to the economy at the same level as existing residents. It takes time to catch up. So what happens is: the total GDP goes up because there are more people—but when that GDP is divided across the population, including the new arrivals, the number per person goes down. In other words, headline GDP growth is masking deeper structural problems in the economy.

Another major reason is the interest rate hikes by the Reserve Bank in response to inflation. Since May 2022, interest rates have surged from a historic low of 0.1% to 4.35%, a total increase of more than 400 basis points. That kind of aggressive tightening has severely suppressed both consumer spending and business investment while dragging down household disposable income. According to data, from mid-2022 to mid-2024, real household disposable income in Australia dropped by 8.2%—the biggest fall on record.

So now the real question is—What does a per capita GDP recession mean for Australia's interest rates in the future?

Per Capita GDP Recession Could Trigger Rate Cuts

If the overall GDP is barely growing, and per capita GDP has already fallen into recession—then something needs to be done to stimulate the economy. So, how exactly is it done? Well, there are a few possible ways.

1. The Government Borrows and Spends

One method is for the government to issue large amounts of debt, borrow money, and inject that money back into the economy through public spending. In essence, this is one of the main ways of printing money and flooding the market with liquidity. But the current data doesn't support that direction.

In fact, public spending actually declined in Q1 of 2025, making it one of the biggest drags on GDP growth. In the past few years, government spending has been a key driver of the Australian economy—especially during the post-COVID stimulus period. But now, we're seeing a shift back toward austerity.

On top of that, extreme weather events—floods and natural disasters—have disrupted several major industries, including tourism, mining, and logistics. That's made the road to recovery much harder.

Of course, we can't rule out the possibility that after the election, as the new government settles in during Q3 or Q4, they might ramp up spending again. But let's be real—this is borrowed money. Borrowed money comes with interest payments. To keep those repayments sustainable, interest rates have to come down—otherwise, even the government can't afford its own debt.

2. The Direct Way: Cut Interest Rates

Think about it—whenever a major global economy runs into trouble, what's the first thing you hear? Rate cuts. It happened in 2008. It happened in 2020.

So why does cutting rates help the economy? Because lower interest rates mean lower borrowing costs for both businesses and households. Buying a house becomes cheaper, consumption becomes easier, and businesses find it more affordable to invest. People are more willing to borrow money.

Take mortgages, for example. If interest rates go down, your monthly repayments go down too. That frees up cash, which households can then use on day-to-day spending. And when everyone does this, the largest component of GDP—consumer spending—starts to lift the entire economy.

At the same time, lower financing costs allow businesses to expand more easily—maybe they'll upgrade technology or hire more staff. This improves employment and investment, which in turn boosts consumer confidence and spending.

Lower rates also make the Australian dollar weaker compared to other currencies, which makes Australian exports more attractive on the global market. That's good news for industries like mining and agriculture. Historically, lower interest rates also trigger housing market upswings, which stimulate construction, furniture, banking, and many other sectors—all of which help pull the economy forward.

3. Improve Productivity—the Root of Wealth Creation

Now let's talk about the fundamental driver of wealth in any economy: productivity.

Unfortunately, Australia's productivity has been stagnant for years, and it's now at its lowest growth rate in two decades. Its global competitiveness ranking has also dropped significantly. In the 2025 World Competitiveness Yearbook, Australia ranked 18th among 69 countries and regions. But when it comes to productivity specifically, we dropped all the way down to 49th. And our per capita GDP growth ranking collapsed to 60th.

In short, Australia has a serious productivity problem. What's holding us back? It's a mix of things: the rise of remote work, an increasing reliance on government handouts, a strong union culture, and the classic Aussie mindset of "It's just a job. Don't call me after hours." All of this makes it hard to lift productivity.

Now in the age of AI, Australia has also failed to make a smooth transition. There were bold claims that Australia could become a manufacturing powerhouse or an AI superpower. But frankly, I think that's just wishful thinking. Why? It's simple: manufacturing and AI require energy. And with Australia's electricity prices, it's unrealistic to talk about competing in those sectors. We just can't beat other countries on cost. If you're interested, I can do a full episode just on that topic.

So, by now, you probably see the picture clearly. If Australia wants a faster economic recovery, if we want to lift our per capita GDP— Cutting interest rates is really the only viable path.

So here's the question: When will Australia actually start cutting rates—and by how much? And in the middle of all this economic weakness, can property prices really keep going up?

Rate Cuts Are Almost Locked In

Recently, all four of Australia's major banks have updated their interest rate forecasts—and they're all pointing in the same direction: rate cuts are coming.

NAB is forecasting the Reserve Bank of Australia will cut rates by 25 basis points in July, August, and November, and then once more in February 2026, eventually settling the cash rate at 2.60%. Westpac expects back-to-back cuts in July and August 2025, followed by further reductions in 2026, with rates potentially falling to 2.85%. ANZ also predicts consecutive 25 basis point cuts in July and August, bringing the cash rate down to 3.35% by year-end. CBA is a bit more conservative—it expects fewer cuts overall but still sees a likely rate cut in either July or August.

And the market agrees. According to the current ASX Rate Tracker, there is now an 86% probability that the RBA will cut rates in July—which means, by most measures, it's almost a done deal.

Now, there's another tool worth paying attention to—the ASX 30 Day Interbank Cash Rate Futures Implied Yield Curve. This curve reflects the market's expectations for the future path of RBA interest rates. It's derived from actual futures prices and serves as an important reference point for investors, economists, and government policymakers.

According to the curve, this rate-cut cycle is expected to continue until May next year, with the cash rate falling from the current 3.85% down to around 3.00%. That implies at least three more rate cuts over the next 6 to 12 months, each around 25 basis points.

So, what does a rate cut mean? That's right—rising property prices. Whenever interest rates are cut, it's usually because the economy is under pressure. And whenever the economy weakens, the government steps in to stimulate it. History has shown us this again and again—every time the government intervenes to rescue the economy, what happens next? Housing prices go up.

Supply vs Demand

We've talked a lot about macroeconomics and history, but when it comes to predicting where property prices are heading right now, the most important thing for ordinary people is still supply and demand. The relationship between these two forces directly determines property prices. If a bunch of people are all rushing to buy a home—but there's only one house on the market—of course, the price will go up.

In Australia, the number of new housing approvals continues to fall. In April, total approvals dropped 5.7%, with fewer than 15,000 homes approved. March also saw a decline of 8.8%. This is not good news for the housing shortage problem. And keep in mind—these are just building approvals, not completed homes. Many projects get approved but never get started. Some take years to finish, and others get abandoned altogether. For example, let's say you bought a house-and-land package. The land has settled, and the building has been approved. Now begins the construction process: laying the foundation, building the walls, the roof, interior fit-outs—and each step requires a different team of trades. From land settlement to completion, a single house usually takes 8 to 10 months. If it's a townhouse or apartment—anything with a strata title—you're looking at 2 years if everything goes smoothly. If costs go up during the process, it's not uncommon for developers to cancel the build or even cancel the contracts for properties already sold.All this slows down the delivery of new housing, further tightening supply.

And there's a more fundamental issue: the relationship between construction costs, labour costs, and house prices. Think about it—if house prices don't go up, but construction and labour costs keep rising, developers and builders lose money the moment they break ground. So what do they do? They wait. While they wait, the supply of homes stays below the level of demand. This imbalance puts upward pressure on prices. Only when house prices rise enough for developers to make a profit will they return to the market. The Australian government's goal to build 1.2 million homes in five years. That's simply not realistic.

So, how do property prices rise? Aside from ongoing supply shortages, the one factor that can accelerate price growth is lower interest rates. When rates come down, people can borrow more money and aim for bigger, better, newer homes. This drives demand. At the same time, developers and builders benefit from lower borrowing costs, too. Even if supply and demand don't reach a perfect balance, they get closer.

So, as long as Australia's immigration policy stays the same, as long as there is steady population growth and ongoing housing demand—and as long as the government wants to stimulate the economy by cutting rates and issuing more debt to boost spending—then there's really no reason for home prices to fall.

Now, even after everything we've discussed, some people still find it hard to understand—Why do I say property prices are likely to rise when the economy is weak? For example, how can housing prices keep climbing when per capita GDP is flatlining? It doesn't make sense, right? Australians aren't getting richer—so where's the money coming from to buy more expensive homes?

Well, here's the part most people miss: The money we use today is fiat currency. It's no longer backed by anything tangible—not gold, not silver. It used to be exchangeable for a fixed weight of gold. Now, it's backed only by government credit. And how much is that credit really worth?

The truth is—money can be created. It can be printed. Credit can also be created—through loans. Want to stimulate the market? Just loosen lending standards. Issue more government bonds. Allow home loans to go from 80% LVR to 98%, just like those "shared equity" schemes. When there's more money and more credit in the system, people have more capacity to buy homes. And even if Australians don't have enough money, remember—migrants are bringing in fresh capital. So population growth, money supply growth, credit expansion, plus falling interest rates—this is why demand keeps rising. And when supply can't keep up? That's how house prices continue to climb.

Now, some people say, "House prices can't go up forever." And I agree, but only to an extent. That statement is too vague. You can look at Australia as one big property market. Or you can break it down by states, cities, even suburbs. Short-term? Every market moves up and down. But long-term? Since World War II, Australian home prices have risen for 75 years. And in the last 30 years, the growth has only accelerated.

So will prices keep rising in the future? Well, we've already explained the core drivers earlier in this video. As long as those fundamentals don't change, the upward trend in property prices will continue.

And let's not forget the growing disconnect between Australian incomes and rising house prices. This mismatch will likely persist for the next 10 to 20 years. So here's the choice you're facing: Do you keep accepting the fact that your wages can't outpace inflation and that you're paying more taxes every year? Or do you take action to escape your current environment and pursue real wealth growth? Let's be honest—Australia's productivity won't improve dramatically anytime soon. The average person's ability to generate wealth through work isn't changing.

So no—you're not going to achieve the "Australian Dream" just by working a 9-to-5. You won't escape the rat race that way.

In my view, the only realistic way for ordinary Australians to move up the economic ladder is through property investment. And AusPropertyStrategy exists to help people do exactly that. Through our VISION membership, we've already helped many members build property investment portfolios across Australia. With our in-house expertise in accounting and wealth planning, we help members set up companies, trusts, and SMSFs, invest across states and territories,  optimise tax and exit strategies. Plus, we operate our own national short-term rental brand to boost cash flow for our investors. Some of our properties even generate gross rental yields of up to 10%, delivering strong, positive cash flow. If you're ready to use property investment to reach financial freedom, head over to our website and book your free initial consultation today.

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