RBA rate rises spark consumer recession fears, Deloitte says 

Australia is headed for a ‘consumer recession’ following two needless rate hikes by the Reserve Bank, one of Australia’s biggest consultancy firms has warned. 

The grim prediction comes ahead of minutes from the RBA’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 lead author of the report 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.

Mr 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 per year once all the rate hikes flow through.

‘But that’s just the average, and there are plenty of mortgage holders on either side of those numbers,’ he added.

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,’ Mr Smith said predicting a ‘consumer recession’.

He also said renters were under pressure from sky-high prices and this cohort were only going to be squeezed tighter on predictions that new home building would barely keep pace with population growth.

‘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,’ he said.

‘Construction is expected to commence on significantly fewer houses and apartments compared to previous years 

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‘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 recorded in 2021.

‘On these numbers, new housing supply would just barely keep pace with population growth, let alone ease what is a critical undersupply.’

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 may offer some insight into how the central bank will interpret incoming data, including the quarterly consumer price index due next week.

RBA board member Ian Harper admitted last week the bank had done a ‘terrible job’ after the Covid pandemic as it struggled to contain inflation but not strangle the economy.

‘Both of those things led us to be extremely cautious. With hindsight, excessively cautious in how we set interest rates during that time,’ he said, according to The Australian. 

‘With the benefit of hindsight … it looks like we did a terrible job.

‘When you look backwards, often times you see things much more clearly than you do at the time.’

Deputy governor Michele Bullock also conceded the RBA’s crucial interest rate messaging was ‘garbled’, after RBA Governor Philip Lowe insisted throughout 2021 that the bank would not increase the cash rate until ‘2024 at the earliest’.

‘I will accept … that the message got garbled. People latch on to a date … and even now that we are raising interest rates, they still want us to put a date on when we are going to stop doing it,’ she said.

‘We should have resisted … a little bit more there.’