Global consulting firm Deloitte has forecast that Australia’s economic growth will decline in the next 12 months, but not at an alarming rate.
Stephen Smith, the report’s author, said the forecast growth was between the continuous recovery from the COVID-19 pandemic and the negative impacts of uncertainty, interest rate hikes, rising inflation and pessimistic consumer sentiment.
He anticipated that inflation would peak at 6.6 percent in the latter half of 2022, and the cash rate would max out at below 2.5 percent in the current cycle of interest rate hikes.
“However, any sign of further acceleration in price growth would see the Reserve Bank of Australia 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.”
The cash rate currently stood at 1.35 percent, following the third rate rise in early July.
States And Territories To Face Challenges
Smith said “structural challenges” would trouble South Australia and Tasmania in the upcoming year, while Victoria and New South Wales had to face the impact of rising interest rates and ballooning mortgages.In addition, he said Queensland, Western Australia and the Northern Territory would hope commodity prices continue to remain higher, while the growth in public service was expected to bring benefits to the Australian Capital Territory.
The report also pointed out a number of potential risks leading to an economic downturn in Australia, including the United States falling into a recession and house prices plummeting more than 15 percent.
Furthermore, Smith noted that there were concerns about Australia’s energy market due to operating issues at ageing coal-fired power plants.
At the same time, he anticipated that wage growth would rise to over three percent in 2023 if the were no wage-price spiral–the situation in which price pressures cause wages to go up and inflate business costs, 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.