By way of definition: Economists define a recession as, two consecutive quarters when an economy declines or two consecutive quarters of a decline in GDP (gross domestic product).

According to ABC News, Former Treasury Economist Warren Hogan believes there is now a 50 percent chance of a recession in Australia in 2023. He blames higher interest rates, reduced tolerance for larger budget deficits, and slower global growth.

"It is the desirable outcome as it will be shallow, short-lived, and followed by a strong recovery," he said.

How a recession can affect us, will differ depending on your own set of circumstances and mindset.

A recession has a domino effect that can impact everyone. If the economy does stop growing, businesses need to reduce costs which can lead to job losses or shaved salaries. This can have a flow-on effect where household spending is reduced as people look to areas where they can cut costs and limit non-essential spending. 

On the upside, Australia is currently experiencing record low unemployment, not usually associated with a recession, so now is a good time to:

• Pay down debts asap - in particular, get rid of bad debt (credit cards, personal loans)

• Build or add to your emergency fund to ensure you have a cash buffer. Try to pay down debt and build your emergency fund at the same time.

• Limit non-essential spending where possible - understand your cash flow and get a handle on your budget.

• Superannuation balances and investments? Hang tight, stay diversified, and stay invested if you can, in line with your goals, values, and risk profile.

• Look after yourself and check in on your friends and family, having good mental health and finding ways to reduce stress are important.

A recession is a normal part of an economic cycle and while we can not know how long a recession will last, we do know, they don't last.

Please note that the information provided on our website is general in nature and does not constitute financial advice so before you make any changes or amendments to your existing circumstances, please talk to a financial planner or your accountant.