Louis Christopher | The Recession Warning (we’re seeing it now)

“Consumer confidence has fallen off a cliff, and it's the worst that it's been in this generation at this point in time. And that’s usually a big indicator we’re going into recession.” - Louis Christopher

Louis Christopher, is one of Australia's most recognised and respected property analysts. 

He reveals what’s actually unfolding in the economy.

From collapsing consumer confidence to rising interest rates and supply shocks, this is the kind of environment that has historically led to recessions.

But here’s the twist… this isn’t a normal cycle.

This is what you need to know:

• 0:00 – The big forecast downgrade (from 6–10% growth to 0–3%)
• 1:45 – Why fuel prices impact EVERYTHING (not just petrol)
• 2:30 – Inflation heading to ~5%… what that means next
• 3:00 – What actually defines a recession (simple explanation)
• 4:15 – If the war ended tomorrow… does anything really change?
• 6:00 – The “perfect storm” hitting the market right now
• 6:45 – Buyers are spooked… but not quite COVID-level panic
• 7:00 – Consumer confidence collapse (the biggest warning sign)
• 7:40 – Why this recession risk is different to the past
• 8:30 – Real-world impact: businesses already passing on costs
• 9:45 – Government dilemma: support the economy or fight inflation
• 11:00 – What happened in the 1970s (and why it matters today)
• 12:00 – What’s happening in the property market right now
• 13:00 – Why April could be a “dead zone” for transactions
• 14:00 – Stagflation explained (and why it’s dangerous)

The entire 1hr discussion of insights and how this translates to buyer and vendor management is only in the Real Estate Gym

Transcript

Forecast Downgrade And The Why

Tom Panos 0:00

Forecast that we had previously, we had an old forecast where you thought growth nationally was going to be between six and ten percent. The new forecast you've got, which you pretty much did in March, well, this month, earlier on this month, um, you've got a forecast of zero to three percent growth nationally.

Louis Christopher 0:22

Is that right? That is that is correct. Uh so what's brought the national results? Why have you downgraded? Why have you downgraded it? Yeah. The rise in interest rates and the high probability of further interest rate rises plus the collapse in consumer confidence.

Tom Panos 0:41

Yeah.

Cost Push Inflation Explained Simply

Louis Christopher 0:42

Uh, and the fact that look, what we're actually going to be seeing because of the result of um fuel shortages is we're going to see a decline in supply. So if you remember, if everyone remembers their economics 101, you got your old demand and supply curve, aggregated supply, aggregated demand. So what is happening as we speak is that the supply curve has shifted and shifting to the left. So there's less supply of goods and services out there, and it's being now done at a higher price. That, of course, is what we call cost push inflation, pushes up the CPI number, and then the Reserve Bank of Australia has to respond to that by lifting interest rates to ensure inflation doesn't spiral out of control. And that's what they've been doing, and that's what they will certainly do when they have their next meeting. The problem with all this is that um it's likely to put the economy into a recession. Uh, if this war continues on for much longer, and we continue to see the big rises at the Bowser. Um, as you might be aware, there's a flow-on effect when you see diesel prices lift as much as they have. Uh, most of the trucks that um transport our food and uh around the country are on diesel. Uh, and so that means food costs start going up, and that feeds through into the CPI result as well. Uh, so a number of experts out there, and I don't I don't profess to be an inflation expert, but the people I follow that do, which include the banks, uh essentially the the forecast is that we will see a June quarter CPI read in the 5% vicinity now. If that number is right, so annual inflation is very likely by mid-year to get to 5%. And then if that is true, the reserve bank then has a real conundrum. Do they lift rates uh to control inflation or do they support the economy? And I think they're going to uh try and kill inflation first.

Recession Definition And Job Losses

Tom Panos 3:03

So Louis, um it sound listen, uh it sounds scary. It sounds scary, um Louis. I wanna firstly, can you def describe uh when is something called a recession? What is the definition of a recession?

Louis Christopher 3:22

Yeah, so that's that's two quarters of consecutive negative GDP growth.

Tom Panos 3:28

Okay. So and can I ask you um what happens during a recession?

Louis Christopher 3:36

Unemployment goes up. Yeah. First thing that happens. Uh so uh people lose their confidence in terms of going out to spend, uh, and as a result, there's not much demand in the economy, and that feeds through into businesses having to cut their costs to ensure they don't go out of business. And the number one way they cut costs that they can do relatively quickly is to uh let go of jobs.

If The War Ends Tomorrow

Tom Panos 4:04

So, Louie, there's there's information that we don't have at hand. Like one thing we don't know is when the war's gonna end, right? So, so we just gotta we we don't know where you know we don't know when the okay. However, regardless of when the war ends, like hypothetically, we open up the news tomorrow morning and they're shaking hands. Trump and the Iranian are shaking hands, which probably won't be happening, but let's assume it probably happened tomorrow. Let's assume it happened tomorrow morning. Yeah. Do we still does life go back to normal after that? Or are there implications of already what's been done? You know, fuel areas that have been blown up, like what have you?

What This Means For Property

Louis Christopher 4:49

Are there yeah, so even if the war to were to end tomorrow, we'll still see an inflationary spike come through based on what's happened in the last month. If the war were to end tomorrow, the Reserve Bank would have a choice of saying, okay, we're going to see through this once-off blimp with inflation and we won't lift rates. Or they'll still be concerned that there might be flow-on effects and that they still need to get on top of this spike that we still will record. So no matter what, we're going to be recording a spike in inflation that's coming. Um, the sooner the war ends, naturally, the better, because that should mean then we'll see a more free-flowing oil comes through the Straits of Hormuz, and then we get some normality occur. But it's still going to take time, even if the war were to end tomorrow. So we're going to get a we're going to get a spike. The question is, do we get more than just a spike? And how do how does the government respond to that? And how does the central bank respond to that? And then when we take it all the way back to property, well, there's there's various ramifications for property. Uh, now at the moment, I think the clearance rates are very clear and obvious. Buyers are spooked right now with all the bad news. Things may settle down in time, as they did in say 2023, after we had interest rates go up, buyers did actually come back to the market. They weren't entirely spooked. This is a bit different uh because you've got a lot of things going on at the same time, and it is a bit of a perfect storm. Uh, so there are a lot of concerned people out there. I don't think, though, Tom, if you recall the uh weeks leading up to the COVID lockdown, where clearance rates collapsed because we completely lost confidence. I don't think it's as bad as that. But nevertheless, it's still quite bad. Um, the as you mentioned, the consumer confidence has fallen off a cliff, and that's the worst that it's been in this generation at this point in time. And that's usually a big indicator we're going into recession. But we are talking about a different type of economic event to what we had in the late 1980s. With the rise in oil prices and petrol shortages, we're talking about what's called cost push inflation. So it's not rising interest rates and rising inflation are not necessarily driven by rising demand, they're driven by a fall in supply. A fall in supply. There's going to be less goods and services available per head of population, and that's what's going to drive up price.

Tom Panos 7:43

Yeah, because I've got to tell you, even mates of mine that work in other industries are telling me, like one guy, he told me he just paid his normal invoice and he paid a surcharge of 2,000, a fuel surcharge. So companies already are putting it on their invoices, which says to me that's driving prices up.

Louis Christopher 8:02

They're passing it on. And so what will that will mean is of course business costs will go up significantly, but someone somewhere down the line will not be able to pass it all on. And so that's why I believe you you are going to see job losses and all this, not unless we see the government come in with major rebates, major expenditure, like what they did in, say, the GFC of 2008. Now that could happen, but the problem for them to do that, if they do that while we're having a spike in the CPI, that could create spiraling inflation. So they support the economy, demand stays where it is, it doesn't get cut back. Um that spurs more inflation. And that's what the RBA is very, very worried about. Because if that happens, then you're going to see some very aggressive rate rises. Yeah, but the issue.

Tom Panos 9:05

So but the issue to me is if you're if you're only using interest rates and you're not using hypothetically rebates or using GST, right? What you're doing is when you're using interest rates, you're using a broad base penalty, right? And often, like if you don't have a mortgage and you're rich, you probably want rates to go up.

The 1970s And Real Asset Hedging

Louis Christopher 9:30

Yes, that's right. If you don't have a mortgage and you know you're a retiree and you a lot of uh a lot of your cash is in the bank, well, this may well feel like better times are about to be had. Uh, but I can tell you, as a statistician and someone that's read history a lot, economic history a lot, especially the 1970s, um, those who have the money in the bank don't really get a real return because inflation devalues that money in the bank more than what the interest rate covers for it. Well, that's what's happened in the past anyway. And that's that's possibly what we're at risk now. And it's a good point to raise, Tom, because in times of high inflation, real assets generally are a good hedge against higher inflation. So, what people are not aware of is that in the 1970s, Sydney housing prices quadrupled in value in that decade. They didn't double value in 10 years, they quadrupled in value in 10 years because of the high inflation environment.

Tom Panos 10:35

So, so so Louis, talking about the 70s, and I've done a bit of research on fuel and other shortages. There were, in fact, in the 70s, 1973 and 1979, there were fuel shortages, right? That's right. Right? 73 and 79, right? And what you're saying is that in that decade you saw prices quadruple, right? Um, which normally in 10 years they sort of double. And I don't know about the real estate agents there, uh, and you can put it in the chat box, the audience, but I was just I left Gavin's office this morning. I was in Rose Bay doing work with Rubenstein and his team, and I'm hearing a lot of the people there in the East are saying, listen, the timing is just bad. Like, get rid of the wall, we'll put it on back then, right? Normally, when you've got a bad market, we normally find that at some price point you can sell it. You adjust the price, a magical buyer appears. But at the moment, whether it's paralysis, total paralysis, where people have just entrenched with fear, they're sort of saying, now's not a good time. And that's concerning because we're a volume-based business. We need volume.

Easter Slowdown Stagflation And CTA

Louis Christopher 11:47

Yeah, that's right. And I I we're now about to go into the Easter period. As you know, April is a month that tends to be affected by public holidays. Uh, and so seasonally volume is tends to be down in this month, uh, and it will be down, I think, uh, across the month. Now, the Reserve Bank of Australia is going to next meet in the month of May. So, whole month of April, the RBA won't be doing anything unless there's a real emergency.

Tom Panos 12:16

Well, there's gotta be there's got Louis. April is got it's got Easter, Orthodox Easter, yeah, the local Easter, Anzac Day, school holidays, yeah, the war. I mean, if if there if there's a melting pot of doing nothing in like like here is the perfect month, and I'm that's actually concerning. I actually think a lot of real estate officers won't make a lot of sales in the month of okay. Yeah, I so Louis, just before we go on, can I ask you what does stagflation mean?

Louis Christopher 12:47

Stagflation means uh rising inflation or high inflation plus high unemployment. Well, that sounds terrible. That sounds shit. Yeah, but it it it is it's a nightmare for central bankers and it's not a good place for the economy. It's about the just about the worst of all places, and yeah, at this at this point in time, there's a real risk we're going to suffer from that.

Tom Panos 13:14

Okay, so Louis, um by the way, everyone, I want to tell you the one positive that I've noticed and in the last two, three weeks, and I think it's got to do with Oh no, the video has just ended. But I've got good news for you. If you resonated with this and you want to take the next step and move from just being a sayer to a doer, this is your sign to join the real estate gym where you can get enormous amounts of content, scripts, dialogues, techniques, processes to help you build an ELF business. Effortless, lucrative, and fun. Press the link right now.