Australian households were shocked by the Australian Bureau of Statistics’ (ABS) Q4 National Accounts.
Following the weak 0.1% growth in the September quarter, GDP in per capita terms, that is after correcting for population growth (immigration), was unchanged in the December quarter.
Worse still, domestic final demand (DFD), which measures domestic activity by adjusting for the impact of net exports, fell by 0.5% in per capita terms in the December quarter.
This came after the September quarter’s per capita DFD growth was flat (0%).
In other words, the aggregate economy is only being saved by rapid population growth due to record immigration because the per capita economy is already on the verge of recession.
Household consumption, which increased by only 0.3% in the December quarter and actually decreased by 0.2% in per capita terms, drove the slowdown in growth.
More than half of Australia’s economic growth comes from household consumption, and where it goes, the economy usually follows:
With this background in mind, Deloitte has charged the Reserve Bank of Australia (RBA) with mismanaging the economy, claiming the two interest rate increases earlier this year were unnecessary.
According to Deloitte’s Business Outlook, at least 300,000 Australians have negative cash flow because their mortgages, rent, and other basic obligations are higher than their income.
Stephen Smith, a partner at Deloitte and the report’s author, said “That should be a shock to us all”.
Deloitte also reduced its forecast of economic growth from 1.5% to 1.2%.
Smith claimed that Australia was seeing the weakest pace of economic growth outside of the pandemic since the recession of the early 1990s and that the RBA had tempted fate with the two extra rate rises.
He now expects a consumer recession in 2023 with household spending anticipated to end the year lower than it began.
“Most Australians will be absolutely okay at a cash rate of 3.6%. However, many people won’t”, Smith said.
“In just 10 months, the cost of servicing an average $600,000 mortgage will have risen by $14,000 a year once those rate hikes are fully passed through”.
Given Australia’s population will likely grow by around 2% on the back of record immigration, Deloitte’s forecast means that Australia faces a consumer-led per capita recession.
The economic pie will continue to grow due to extreme immigration. But everybody’s share of the pie will shrink.
