Household consumption is the Australian economy’s key growth driver, accounting for 55% of growth on average over a typical quarter.
Thus, where household consumption goes the economy usually follows:
The economy typically follows household consumption.
With this background in mind, it was curious that Tuesday’s federal budget forecast that household consumption would boom in 2022-23, growing by 6.5% over the financial year, up from 4.1% growth in 2021-22:
Household consumption to boom in 2022-23.
This is real consumption, based on volumes, not inflated prices.
The projected boom in household consumption is curious given the Reserve Bank of Australia has commenced the most aggressive interest rate tightening cycle on record, which has already seen the official cash rate and mortgage rates soar by 2.5% since May:
In turn, average variable mortgage repayments have already soared by 34% with fixed borrowers to soon follow suit as their cheap loan terms expire:
Consumer confidence is also tracking near recessionary levels:
And Australian dwelling values are falling at their fastest pace on record, which typically correlates with slower household consumption:
These conditions suggest falling household consumption growth for 2022-23, not rising consumption.
The budget’s entire economic forecasts are built on quicksand.
