Australia’s major banks have downgraded their forecasts for economic growth as cash strapped consumers tighten their belts in response to continued interest rate rises.
There are growing concerns of a per-capita recession – where the country experiences two quarters of negative growth in gross domestic product per person.
Both ANZ and Westpac are now expecting the standard of living to enter a decline in the year ahead.
All four of the big banks are tipping the economy will continue to grow – avoiding a full blown recession – although this growth will be smaller than initially expected.
In its statement on monetary policy last month, the Reserve Bank of Australia said it expected gross domestic product to rise by 1.5 percent in the second half of 2023, and remain the same for the whole of 2024.
However, since then, the Reserve Bank has lifted interest rates by a further 0.25 percentage points to 4.1 per cent, with governor Philip Lowe warning more rises could still be on the way.
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In response, Westpac has lowered its growth forecast from its previous estimates of 1 percent in 2023 and 1.5 percent in 2024, with the bank’s chief economist Bill Evans saying these were based on an RBA cash rate peak of 4.1 percent in May with an easing in the cash rate beginning in February 2024.
Westpac has now lowered its growth forecasts to 0.6 percent in 2023 and 1.0 percent in 2024.
“The key driver of this insipid growth outlook is household consumption which we now expect to grow by just 0.3 percent in 2023 and 0.6 percent in 2024,” Evans said.
“This consumption profile is consistent with the very weak measures of consumer sentiment we have seen since the onset of high inflation and rising interest rates in 2022.”
Meanwhile, ANZ is predicting GDP to grow just 1 per cent in 2023 and 1.3 per cent in 2024, with per-capita GDP to decline until the second half of 2024.
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