The fallout from these colliding influences will have a large bearing on interest rates and ultimately determine if there will be recession or growth next year.
Economists have varying views on how the competing forces will play out and events in the last year have shown how crystal ball gazing is fraught with difficulty.Positively, unemployment is at a 48-year low of 3.4 per cent, wages are picking up and the household savings stockpile is high. On the other hand, high inflation and soaring energy prices, rising interest rates and falling house prices will drag on people’s purchasing power.
“Australia has shown a reasonable degree of resilience so far,” she says. “The starting point for the economy is probably stronger than most would have thought after 300 basis points of interest rate rises.”But higher interest rates will bite when people receive their credit card bills after the Christmas and holiday spending splurge.
Her view is not universal and certainly not shared by inflation hawks. Stephen Miller, an adviser to GSFM, says his “big fear” for 2023 is that the RBA is running the risk of the ““Wage and inflation indicators still have quite a bit of momentum and are suggesting there are upside risks to the RBA’s inflation forecasts,” Miller says. “I worry the RBA has more work to do than it, or the market, currently thinks it does.
RBC’s Ong says the dominance of variable rate mortgages is positive for Australia because monetary policy will have a “faster traction”.since records dating back to 2009. Total mortgage payments for interest and principal across the economy are about 9 per cent of total household disposable income and could hit almost 10 per cent next year if financial market pricing for further interest rate increases next year is realised. .
“Although most households are likely to be able to weather increased pressure on their finances for some time, many will need to curtail their consumption and some could ultimately see their savings buffers exhausted,” the RBA’s Financial Stability Review noted in October.
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