Warning – before the headlines catch up, the signs and timing window for a significant economic recession..

There are a few things happening right now that indicate a severe recession is forthcoming.

Firstly, the squeeze on interest rates.

In Australia, financial markets are now pricing in the likelihood of four rate hikes for 2026. It was always the forecast at LCI that we’d see rising rates into the peak. Until a few months ago, it was theoretical that we’d get there. Economists were still pricing in falls.

But now the cycle forecast is in. 

We’ve already had two hikes - February and March – the next is likely to be in May, and if we get a fourth after that, it’s going to add around $470 to the average monthly cost of an average $736,000 new mortgage.

There can be long periods in the cycle where prices rise despite interest rates edging higher. We saw it in the lead up to the land price peaks in previous cycles – 1973, 1989, 2008.

That’s because the economy is typically perceived as going well due to the tidal wave of credit created and lent for speculation in preceding years.

However, at the end of the cycle – where we are now - when interest rates finally bite – and the debt burden becomes too great, the timing is ripe for the downturn to commence.

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