Expert Rand Low of Bond University urges Aussies to drive the country into a recession - here's the compelling reason why

Australia has avoided a recession despite the soaring cost-of-living crisis - but there are now calls to deliberately trigger a short and sharp recession to prevent a prolonged economic contraction. 

Australia's economy last year grew by just 1.5 per cent, which outside the 2020 pandemic, was the weakest annual growth since 1991 when aggressive interest rates last caused a recession.

Rand Low, associate professor of quantitative finance at Bond University, has urged Australians to cut back on discretionary spending - items like takeaway coffee, online subscriptions or nights on the town - so more cash isn't pumped into the economy.

Treasurer Jim Chalmers is delivering his third Budget in a fortnight featuring stage three tax cuts for low and middle-income earners - but Dr Low wants Australians to save that money rather than spend it. 

'It's true that if we eat out less, buy less ''stuff'' it will impact the economy and drive it into a recession,' he told news.com.au this week. 

'But what we are looking for is that it may be necessary to have a slight recession for maybe a year or so, rather than a ''deep'' recession that may last several years.'

Inflation remains high despite 13 Reserve Bank hikes in 2022 and 2023 - marking the most aggressive monetary policy tightening since 1989.

The consumer price index of 3.6 per cent in the year to March was an improvement on December's 4.1 per cent level but underlying measures, stripping out big price changes, were above 4 per cent.

Inflation remains above the RBA's 2 to 3 per cent target and financial markets are pricing in more rate rises, despite the Reserve Bank cash rate being at a 12-year high of 4.35 per cent. 

Commonwealth Bank's head of economics Gareth Aird this week hinted a rate rise in 2024 was possible, as Australia's biggest home lender changed its forecasts to have only one cut this year. 

Mr Low said unions across Australia have been demanding wage increases to battle the rising cost of living which would likely cause white-collar workers to also demand similar increases.

'If there is no increase in productivity, any additional increases in wages simply serves to increase the price of goods and services, which is inflation,' he said.

Dr Low said having a self-induced short, sharp recession could avoid what is known as 'stagflation' - or high inflation and high unemployment simultaneously.

In other words the price of goods and services goes up, and wages rise to keep pace but the country does not produce more, which weakens the Australian dollar and makes the country less competitive on the world stage.

He said if stagflation occurs Australia would see a recession that would affect the country for years, repeating what happened during the early 1980s and more briefly during the early 1990s.

Dr Low said if the country can remain competitive in the short-term then once global tensions ease, in the Middle East, Europe and also around China, then Australia can fall back on its core exports such a mining and education, which will boost our economy.

He said emerging industries in the technology and renewable energy fields could also lead to a new boom for the country if we can avoid a long-term recession.

Treasurer Jim Chalmers says the tax relief, due to kick in midway through this year, will be the centrepiece of his government's financial support plan.

'And if we can afford to do a little more than that, then those decisions will be taken in the next week or two,' Dr Chalmers told reporters in Canberra on Monday.

The treasurer acknowledged the pain Australians were feeling but said any additional cost of living help would need to 'take the edge off inflation rather than add to it'.

Headline inflation has moderated from its peak but the 4.1 per cent annual lift in the December quarter is still above the two-three per cent target range.

March quarter inflation data is due on Wednesday and is expected to show inflation picking up a little on a quarterly basis from the 0.6 per cent recorded through to December.

Economists believe it will moderate from the 4.1 per cent annual rise recorded in the 12 months to December.

Dr Chalmers said inflation remained the focus in the short term, and was one of the reasons his government was still shooting for a surplus in 2023/24.

Yet asked if deficits in the next two financial years as forecast in the mid-year budget update were suitable in a high inflation environment, he said the balance of risks were shifting.

'And our fiscal strategy will shift a little bit with it,' Dr Chalmers said.

Ahead of the May 14 budget, the treasurer has been meeting with G20 counterparts in Washington, and said global uncertainty has prompted Treasury to revise growth expectations for key economies.

China's growth has been downgraded by 0.25 percentage points in 2025 to 4.25 per cent, according to Treasury forecasts.

The downgrade would mean China's growth would be the weakest period since the Asian nation opened its economy up in the 1970s.

The UK economy's forecast has also been downgraded by 0.5 percentage points to 1.25 per cent in 2025, prompted by cost of living pressures and a slump in exports following Brexit.

Japan has had its growth revised to just 0.75 per cent in 2024, down by 0.25 percentage points after weaker than expected consumption.

It's unclear if these revised forecasts will have implications for the domestic context, with the treasurer indicating Australia's refreshed predictions will be in the budget.