CBA boss warns of ‘short sharp contraction’ en route to Australian economy

The boss of Australia’s largest bank has warned that the economy is already contracting and that a “short, sharp contraction” is imminent.

Late Wednesday, Commonwealth Bank of Australia CEO Matt Comyn announced the company’s full-year results.

Although the CBA made a whopping $9.6 billion in profits last fiscal year, Mr. Comyn warned that tougher times were ahead.

He told the Australian Financial Review that he predicted “a brief, sharp contraction in the Australian economy”.

“We certainly expect a more challenging year ahead than we have seen in the past 12 months,” he added.

In good news, however, the bank manager believes that a contraction is almost a certainty, but that a full-scale recession is less likely.

Australia is gripped by an economic crisis as inflation rose to 6.1 percent last month, its highest level in 20 years.

And for the first time in more than a decade, Australia’s central bank had no choice but to raise cash interest rates to stem rampant inflation.

For the last four consecutive months, the Reserve Bank of Australia has raised interest rates by 1.75 percentage points and Mr Comyn will follow further rate hikes.

Mr Comyn told the publication that his bank predicts the spot interest rate will rise another 75 basis points to 2.6 percent.

The cash rate is currently 1.85 percent.

Once the spot rate hits 2.6 percent, Mr Comyn said the economy would experience a 1.5 percent contraction.

He said he “hoped” that once cash interest rates hit this point it would be enough to curb spending, adding: “We should see a slowdown in demand.”

Speaking to ABC, Mr Comyn said: “We predict recessions in the US, UK and Europe. We don’t believe that is the likely outcome in Australia.”

There are already signs that Australians are wasting less money.

Mr Comyn said their customer data shows spending on both debit and credit cards is declining.

This was significantly more for customers with a mortgage.

“It is quite early after the immediate interest rate hikes, [but] we are already seeing a decline in spending across our customer base, both from a debit and credit perspective,” he said.

“Of course, that’s more pronounced with home loan customers, and we expect it to stay that way over the course of the calendar year.”

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