QIC chief investment officer Allison Hill said in the QIC’s regular podcast that “it’s likely we will hit a recession”, but its chief economist Dr Matthew Peter said everything hinged on Australia’s unemployment and whether central banks, like Australia’s Reserve Bank, could hold their nerve and not increase interest rates too high.

A recession is classified as two consecutive quarters of a contracting economy, but plenty of economists question whether that was an accurate gauge.

Federal Treasurer Jim Chalmers said there were deteriorating economic conditions globally.

In an op-ed for The Australian, Chalmers said the economic challenges were intensifying, inflation was rampant and central banks were responding with “blunt and brutal’ interest rates increases.

The ASX also tumbled more than 150 points on the back of the interest rate rise in the US.

Hill said the world was “seeing quite assertive action (from central banks) globally to bring inflation under control” following the US Federal Reserve lifting rates by 0.75 per cent. Europe and the Bank of England had also sharply tightened rates.

“All of that is putting pressure on the Australian dollar which is trading down and putting on further demands on Australia.

“While we have our own dynamics and we are fortunate in having our own energy supplies we are part of the global economy and we are linked in that sense and so it is very likely that we will see the RBA continue to increase our official cash rate by another half a per cent in October. If we look at market pricing it looks like there are expectations that we are heading into 4 per cent territory next year.

“For anyone who is paying a mortgage that’s a lot of money.

“We have had a debate over the last couple of weeks on whether it will be a recession or not. It’s not a foregone conclusion, but all of these factors continue to lead me to the fact that we will probably, likely have a recession.”

Only a few weeks ago, QIC argued that it was too early to call global recession and that the global economy would experience a soft landing or a very mild recession at worst.

However, Matthew Peter said he still believed Australia could escape a recession, but added if the cash rate got to 4 per cent, as the market was predicting, bond yields were higher than that and mortgages much higher than that, it could be a tipping point that could “roll a consumer over”.

QIC has a forecast for the cash rate to peak at 3.35 per cent.

“The hard bit for us is going to be the second half of this year, where we continue to get inflation rising and we believe wage growth will still be pretty sluggish so we will see the consumer falling behind in terms of real wages and spending power will be dropping,” he said.

“As long as we can keep the unemployment rate from climbing too sharply, if we can keep it under 4 per cent (currently it’s 3.5 per cent) through to the end of the year … given that the savings buffers the household sector has raised and the fact that everybody has a job and wages are starting to improve that should be enough to keep consumer spending from rolling over.

“Employment is the key as well as the central banks holding their nerve. Jobs have to hold up and central banks have to not panic and overshoot in terms of raising rates.”