Australia could be facing another two interest rate hikes before Christmas, and that has one economist worried.
According to The Australian, HSBC chief economist Paul Bloxham has warned that the Australian economy could be heading for a difficult few months.
He believes the Reserve Bank of Australia (RBA) may need to lift rates again, despite signs of slowing growth.
And if he's right, Aussies could be facing more than just higher mortgage repayments.
With the RBA meeting next Tuesday, his latest outlook gives borrowers and investors plenty to think about.
So, just how worried should Australians be?
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HSBC sees recession risk climbing
Bloxham believes the RBA has a strong case to lift interest rates next week, followed by another increase in November.
But he warns that two more hikes could leave the Australian economy struggling to grow around the turn of the year.
He expects economic growth to come close to stalling in the December and March quarters.
That has him putting the risk of a technical recession at close to 50%.
A technical recession occurs when the economy contracts for two consecutive quarters.
For comparison, Bloomberg's surveyed recession probability over the next 12 months is currently just 20%.
So, why is Bloxham particularly concerned?
He points to Australia's weak productivity growth, which has left the economy with very little room to expand without pushing inflation higher.
Bloxham believes growth may need to slow considerably, or the economy may need to contract.
He says this could be necessary to bring underlying inflation back to target by late 2027.
Why are more rate hikes expected?
The RBA has already increased interest rates 3 times this year, taking the cash rate to 4.35%.
However, inflation remains above the central bank's 2% to 3% target.
The latest ABS inflation figures showed annual headline inflation at 3.5% in July, while trimmed mean inflation remained at 3.6%.
Higher oil prices and global inflation pressures are adding to the RBA's concerns.
Earlier this week, RBA governor Michele Bullock warned that inflation risks were materialising, although she stopped short of committing to another rate increase.
Meanwhile, yesterday's employment report showed Australia's unemployment rate increasing to 4.6% in August.
Employment rose by 39,500 people, but full-time employment declined by approximately 6,000.
Those figures suggest the labour market is cooling, but inflation remains a concern.
What happens next?
The RBA will announce its next interest rate decision on Tuesday, 29 September.
But there's another complication.
August's inflation figures aren't due until Wednesday, one day after the board meets.
That means policymakers will have to make their decision without another inflation reading.
