By James Glynn


SYDNEY--Australia's economy will be lucky to avoid a recession this year, with rising interest rates set to crunch consumer spending and foster the weakest economic conditions in 30 years.

According to the latest Deloitte Access Economics Business Outlook, global economic growth is also set to slow to a trickle as the battle to contain inflation continues over a long horizon.

The Reserve Bank of Australia's decision to continue raising interest rates in February and March will result in a consumer recession this year, with household spending expected to finish the year below where it started, said Stephen Smith, lead author of the report.

The RBA raised its official cash rate to 3.60% in March, its highest level in more than a decade, and the 10th consecutive increase since May last year. The record-breaking blitz of rate increases targeted the biggest inflation spike since the early 1990s.

Still, recent monthly inflation data has pointed to a likely peak inflation late in late 2022.

The RBA announced a pause in its interest-rate increases this month, but warned that further hikes were possible if inflation remains stubbornly high.

The impact of the hikes announced so far will grow over the coming months, however, as borrowers with low fixed-rate loans will be exposed to much higher floating rates.

By early 2024, the cost of servicing an average $600,000 Australian dollar (US$402,480) mortgage will have risen by more than A$14,000 a year as higher interest rates hit household budgets, Mr. Smith said.

"But that's just the average, and there are plenty of mortgage holders on either side of those numbers," he added.

The RBA itself is estimating that around 15% of variable-rate, owner-occupier mortgage holders will be in negative cash flow by the end of 2023, with as many as 300,000 borrowers already projected to be in this position.

Deloitte Access Economics has revised down its expectations for Australia's economic growth in 2023 and 2024 to just 1.5% and 1.2%, respectively.


Write to James Glynn at james.glynn@wsj.com; @JamesGlynnWSJ


(END) Dow Jones Newswires

04-17-23 0844ET