By Oliver Gray
Investing.com - Deloitte Access Economics has accused the Reserve Bank (RBA) of taking unnecessary risks with its aggressive interest rate hike strategy, which could push Australia into a state of consumer recession.
According to their latest Business Outlook report, the 25 basis point increases in February and March this year resulted in Australia's weakest economic growth outside pandemic times since the early 1990s.
Stephen Smith, partner and lead author of the report at Deloitte Access Economics noted that the downgrade is focussed around households with a ‘consumer recession’ forecasted in 2023.
A consumer recession occurs when there are at least two quarters when household spending falls instead of growth across the entire economy. Smith added that “At a cash rate of 3.6 per cent, most Australians will be just fine. Many however will not.” This means that within ten months from now; servicing an average $600k mortgage will cost over $14k more annually once those rates fully pass through - but this figure varies between different mortgage holders.
Moreover, recent RBA modelling indicates that by end-of-year around 15% variable-rate owner-occupier mortgage holders may experience negative cash flow while some already face such circumstances.
On these numbers alone over three hundred thousand Australian households might currently find themselves dealing with negative cash flow issues as they struggle to balance their mortgage payments alongside essential living expenses leading them towards financial instability.
Renters too are feeling squeezed by higher rents without any relief in sight making matters worse for everyone involved as they struggle under increasing financial pressure caused by RBA’s risky moves.