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Cost of living crisis: What happens next

The cost of living crisis took many Aussies by surprise as inflation surged to levels not seen since the 1990’s.

Cost of living
Aussies are struggling with the rising cost of living. (Source: Getty / Finder)

What a year it’s been and it’s only March. The cost of living crisis has kept Aussies in its grips for over a year and households are doing it tough.

But what can we expect from the rest of 2023? Unfortunately, the experts are predicting the worst is yet to come.

In January, Finder asked a group of economists to describe their outlook for the Australian economy in this year.

While the majority (53 per cent) of the panel had a neutral outlook, a significant portion (39 per cent) had a negative outlook, with 4 per cent reporting a very negative outlook. Sadly, only 8 per cent of panellists had a positive outlook for the economy in 2023.

Why so negative?

For the most part, those who had a negative outlook were watching the Reserve Bank of Australia (RBA) and determining that interest rates would continue to rise - meaning so will mortgage repayments.

“If the RBA continues to pursue contractionary monetary policy, the continued increase in the cost of credit (combined with inflationary pressures) may result in significant negative implications for both households and businesses. This will likely result in an economic downturn and will affect the economy's long-run growth capacity,” Dr Sveta Angelopoulos from RMIT said.

Dr James Morley from the University of Sydney shared a similar sentiment but also suggested global factors will play a big role in the year ahead.

“2023 looks a bit ominous in terms of a weakening US economy, problems for China's economy related to COVID and ongoing global issues related to the war in Ukraine,” Morley said.

“Also, the higher interest rates will start to affect more and more households as they come off any fixed-term mortgage rates. Falling house prices will also weigh on consumer sentiment and spending.”

Is there anything to feel positive about?

Yes. While it may not always feel like it, Aussies can take solace in the fact that we will probably avoid a recession.

“The rise in interest rates and cost of living pressures will likely drive a sharp slowdown in economic growth. Recession is likely to be avoided though,” AMP chief economist Shane Oliver said.

“And the slowdown should lead to much lower inflation, a peak in interest rates and eventually a reduction in rates later in the year or early in 2024.”

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