RBA's 'unnecessary' move sparks warning for Aussies: 'Tempting fate'
Australia’s economy is on a knife-edge and the Reserve Bank is being blamed.
A major consulting firm has accused the Reserve Bank (RBA) of ‘tempting fate’ with its aggressive interest rate hikes, and has warned Australia could be pushed into a consumer recession.
Deloitte Access Economics’ latest Business Outlook report said the two 0.25 per cent hikes in February and March this year were “unnecessary” and meant Australia was now facing “the weakest rate of economic growth outside the pandemic since the recession of the early 1990s”.
“That downgrade is centred on our households, and a ‘consumer recession’ is now forecast in 2023, with household spending expected to finish the year below where it started,” Deloitte Access Economics partner and report lead author Stephen Smith said.
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A consumer recession is when there are at least two quarters of falling household spending, rather than the entire economy.
“At a cash rate of 3.6 per cent, most Australians will be just fine. Many, however, will not. In just 10 months, the cost of servicing an average $600,000 mortgage will have risen by more than $14,000 per year once those rate hikes are fully passed through,” Smith said.
“But that’s just the average, and there are plenty of mortgage holders on either side of those numbers.”
The latest RBA modelling suggests that 15 per cent of variable-rate, owner-occupier mortgage holders will be in negative cash flow by the end of the year, with some already in this position.
“On these numbers, at least 300,000 Australian households may currently be experiencing negative cash flow, with mortgage repayments and essential living expenses together exceeding household disposable income. That should shock all of us,” Smith said.
Renters are also suffering and are being squeezed by higher rents, with little relief in sight.
“In short, we are building far too few dwellings and, with a myriad of supply-side challenges unresolved, that is unlikely to change in the near term,” Smith said.
New South Wales and Victoria are expected to be hit the hardest by the consumer-led slowdown, while Western Australia and Queensland are still “relative bright spots”.
With households hurting, construction slumping and a shaky global environment, Deloitte Access Economics has revised down expectations for Australian economic growth in the 2023 and 2024 calendar years to just 1.5 per cent and 1.2 per cent, respectively.
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