Strip away gains from population growth and the country is technically in a recession.

“The big issue is the consumers,” said National Australia Bank chief economist Alan Oster.

Like many advanced economies, Australia’s unemployment rate is not too bad, but like elsewhere there has been a troublesome mixture of high personal debt and stagnant wages.

In response, Australians are being more thrifty – spending less on eating out, paying little heed to almost constant high street discounts, and, crucially, spending less on rent and accommodation.

House prices in Sydney have now fallen almost 15 per cent from their peak two years ago.

The economy now looks less like Goldilocks and more like the emperor with no clothes.

That is a big lesson for the rest of the world as it picks up the pieces after the financial crisis, said Gabriele Gratton of the University of New South Wales.

“The Australian economy didn’t diversify enough and it exposed itself to a situation where Australian households are highly indebted,” Gratton said.

Chinese growth also contributed to the sharp rise in housing prices as both locals and foreigners piled into the market, particularly in the major cities Sydney and Melbourne.

“If prices do not collapse, then nothing happens. But if prices do collapse, it will cause the type of [problems] that we’ve seen in Ireland or in Spain,” Gratton said.

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The Reserve Bank, which just a year ago appeared more likely to raise interest rates, has reversed course and cut, with more cuts expected.

With interest rates already so low, stimulus spending could be on the cards. But both the central bank and the government have limited room for manoeuvre.

“The problem is you don’t have the policy instruments that we can pull now that we pulled in the global financial crisis,” Oster said.

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Despite the pessimism, most economists do not believe Australia will slip into recession.

The Australian dollar has been weakening, boosting exports, state and federal governments have been splashing out on public services such as health care and infrastructure, and population growth remains strong.

Prime Minister Scott Morrison has promised to cut taxes and red tape.

But forecasts over the last year have been repeatedly over-optimistic.

Central bank governor Philip Lowe has taken the unusual step of asking the government to spend more – lest the porridge go cold.