Australia’s economy will slow down over the next 12 months, but not catastrophically so, a global consulting firm has predicted.

Deloitte Access Economics’s quarterly Business Outlook forecasts economic growth of 3.0 per cent in 2022/23 and 2.5 per cent the following year.

Author Stephen Smith calls it “a middle ground between continued recovery from the previous effects of the virus, and the dampening impact of uncertainty, rising interest rates, higher inflation and softer consumer confidence”.

He predicts that price growth will peak at 6.6 per cent in the second half of 2022, while the cash rate could peak below 2.5 per cent in the current tightening cycle.

“However, any sign of further acceleration in price growth would see the RBA lift rates further and make the balance between fighting inflation and supporting economic growth more challenging,” he wrote.

“That would inch Australia closer to ‘stagflation’ – a central banker’s worst nightmare.”

Mr Smith wrote that “structural challenges” would likely dog South Australia and Tasmania in the year ahead, while Victoria and NSW will have to deal with the impact of rising interest rates and swollen mortgages.

Queensland, WA and the NT will be hoping commodity prices stay higher for longer, while ACT should benefit from a lift in the ranks of the public service.

Plausible risks to the downside include the USA entering a recession that drags down the global economy, and a larger drop in house prices than the 15 per cent many are expecting.

There are also renewed concerns over Australia’s energy market with reliability issues around ageing coal-fired power plants, Mr Smith wrote.

He predicts wage growth lifting to above three per cent in 2023, with his base case forecasts assuming a wage-price spiral are avoided. (That’s when price pressures lead to higher wages, increasing business costs and demand, driving prices even higher).

“However, the prospects of that occurring are greater than before the pandemic, and would risk a period of more entrenched inflation,” he wrote.

Derek Rose
(Australian Associated Press)

Categories: Business, Finance
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