The grim prediction comes ahead of minutes from the Reserve Bank’s April meeting where the board opted to pause after 10 interest rate rises in a row.
The Deloitte Access Economics report said the last 50 basis points of increases were “unnecessary” and had only served to dampen Australia’s growth outlook.
The report’s lead author and partner at the firm, Stephen Smith, said household spending would finish the year below where it started as the costs of servicing a mortgage ballooned.
Smith said most Australians would cope with the cash rate hitting 3.6 per cent but many would not, with the cost of servicing an average $600,000 mortgage rising by more than $14,000 a year once all the rate hikes flowed through.
“But that’s just the average, and there are plenty of mortgage holders on either side of those numbers,” he said.
Under these conditions, he said at least 300,000 households already have more cash flowing out through higher mortgage repayments and general expenses than coming in through wages and other sources of income.
“That should shock all of us,” Smith said.
He said renters were under pressure from sky-high prices and would be squeezed tighter on predictions new home building would barely keep pace with population growth.
Against the backdrop of household pain, a lull in dwelling construction and a shaky global environment, the firm’s economists have revised their expectations for economic growth down to 1.5 per cent in 2023 and 1.2 per cent in 2024.
This will be the weakest growth outside the pandemic and the recession of the early 1990s.
Further interest rate hikes have not been ruled out, with the minutes from the RBA’s April cash rate decision hopefully containing some clues about the bank’s future decisions.
While the minutes are unlikely to add much more to subsequent public appearances by RBA board members, they might offer some insight into how the central bank will interpret incoming data, including the quarterly consumer price index due next week.
Opposition frontbencher Simon Birmingham said the federal government needed to ensure it didn’t worsen the inflation problem.
“We’ll only see Australians paying more through higher interest rates,” he said.
-AAP
