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The firm says bank’s measures will see the fewest construction starts in more than a decade.
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‘Unnecessary’ RBA rises tip economy towards recession: Deloitte
18 April 2023
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10 minute read
The RBA’s rate rises have left the economy on the brink of a recession amid a global economic slowdown, according to the Deloitte Access Economics Business Outlook report.
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Deloitte Access Economics partner and lead author of the report Stephen Smith doubled down on previous criticism of the RBA.
“Our view remains unchanged – the additional 50 basis points of increases earlier this year were unnecessary, and have prompted a further downgrade in Australia’s growth outlook,” said Mr Smith.
“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.”
Mr Smith said while many Australians could survive with the cash rate paused at 3.6 per cent, there would be more who were only just beginning to feel the impact of the rapidly rising rates.
“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.”
“But that’s just the average, there are plenty of mortgage holders on either side of those numbers.”
The Financial Stability Review from the RBA suggested that some 15 per cent variable-rate mortgage holders would be forced into negative cash flow by the end of 2023 with many projected to already be there.
“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,” said Mr Smith.
He said mortgage holders were not the only ones who would be feeling the pinch with renters also impacted due to the lack of a supply-side solution.
“This is an issue of supply and demand, but private dwelling investment is forecast to fall rather than increase through 2023, before recovering only modestly in 2024.”
“Construction is expected to commence on significantly fewer houses and apartments compared to previous years – in fact, Deloitte Access Economics expects that 2023 will see construction commence on the fewest dwellings in more than a decade and almost 70,000 below the level commencements in 2021.”
“On these numbers, new housing supply would just barely keep pace with population growth, let alone ease what is a critical undersupply.”
Deloitte Access Economics also re-evaluated its predictions of Australia’s economic growth due to global instability and the slowed construction industry hurting households, revising its expectations for growth in 2023 and 2024 to 1.5 per cent and 1.2 per cent respectively.
Deloitte said if its predictions were realised it would mean Australia’s growth would have reached its slowest point – outside of the COVID-19 pandemic – since the recession of the early 1990s.
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