A marked slowdown in global economic growth is now anticipated through 2023. Europe and the United Kingdom are likely already in or very close to recession, while a recession in the United States (US) now looks increasingly difficult to avoid. Combined with weakening growth in China, likely recessions in major advanced economies on either side of the Atlantic set an ominous backdrop for the world economy in 2023.
Releasing the September 2022 edition of the flagship Business Outlook report, Deloitte Access Economics Partner and report lead author, Stephen Smith, said: “The current economic outlook is coloured by more persistent price pressures, an aggressive and synchronised tightening of monetary policy, geopolitical flashpoints, volatile financial markets, and weakening consumer confidence.
The effect of quantitative tightening by central banks is largely untested. Given that financial markets the world over have become addicted to low interest rates, elevated asset prices, and the idea that governments and central banks will keep coming to the rescue, the path is unlikely to be smooth.
“The breadth of these challenges has raised the likelihood of a global recession in the near term. But that is not Deloitte Access Economics’ current expectation.”
Turning to the situation at home, Deloitte Access Economics Director and report co-author Cathryn Lee, said: “Overall, global economic conditions have deteriorated and 2023 will be challenging. But Deloitte Access Economics is not forecasting the local economy to slip into recession.
“A weaker global economy, a downturn in the housing market, and a more cautious consumer will weigh on Australian economic growth in the near term. But there are important positives as well.
“Inflation is expected to peak in the December quarter and – while remaining elevated – will gradually retreat through 2023. Combined with slowing economic growth, that will give the Reserve Bank an opportunity to follow a less aggressive tightening cycle than has been seen in other countries. Deloitte Access Economics anticipates only two more interest rate hikes in this cycle before the peak.
“At the same time, a strong labour market, rapidly improving net migration and firming wages growth mean that Australia is in a solid position to weather the storm and avoid recession.”
Discussing Australian economic conditions in more detail, Stephen Smith added: “The reduction in the size of interest rate increases to a more typical 25 basis points in October was a relief, and is in line with Deloitte Access Economics’ view that financial market expectations of where interest rates might head were always overdone.
“A lower peak for interest rates in Australia compared with the US will mean further falls in the Australian dollar. But that’s not a disaster – the US dollar is stronger across the board, and the Australian dollar will hold up much better against a broader basket of currencies, which reduces the risk of importing more inflation.
Key forecasts: Deloitte Access Economics Business Outlook, September 2022