Concerns over inflation in various economies are leading to a sluggish global economic growth forecast for the next year. In Australia, the economic environment is delicately poised, following two additional interest rate hikes in early 2023, on top of eight consecutive increases since May 2022. As a result, the country is facing its weakest economic growth rate since the early 1990s recession, excluding the pandemic.
The March 2023 edition of Deloitte Access Economics' flagship Business Outlook report, led by Stephen Smith, reveals that the recent rate hikes were unnecessary and have downgraded Australia's growth outlook. The downgrade primarily affects households, with a forecasted 'consumer recession' in 2023, leading to a decrease in household spending by the year's end. Many households are expected to struggle, as mortgage rates surge due to the interest rate hikes.
According to the Reserve Bank of Australia's latest Financial Stability Review, about 15% of variable-rate, owner-occupier mortgage holders are projected to experience negative cash flow by the end of 2023. This could result in around 300,000 Australian households facing financial difficulties, with mortgage repayments and essential expenses exceeding their disposable income.
Renters are also feeling the pinch of rising rents, and the housing market faces challenges, as private dwelling investment is expected to decline in 2023. Construction of new houses and apartments is projected to be significantly lower than in previous years, causing a critical undersupply of housing.
Due to households' financial struggles, sluggish dwelling construction, and uncertainties in the global economy, Deloitte Access Economics has revised down Australia's economic growth expectations for 2023 and 2024 to 1.5% and 1.2%, respectively. If realized, these growth rates would be the slowest since the early 1990s recession, excluding the impact of the COVID-19 pandemic.
As industries reflect slowing global and domestic economic conditions, certain sectors, such as retail and construction, are expected to be more affected than others. Meanwhile, agriculture might experience a pullback after recent highs.
Across states and territories, New South Wales and Victoria will face the hardest hit from the consumer-led slowdown, but other jurisdictions are also experiencing softening economic conditions. Western Australia and Queensland, however, remain relatively brighter spots, with the contribution of mineral exports to the growth outlook.
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