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The economy is slowing to a crawl, according to the latest data.
Key points:
- NAB's Forward Growth report expects economic growth to slow below 1.0 per cent
- The report predicts the cash rate to reach 3.6 per cent in March 2023
- New data reveals average family spending has risen 15 per cent in five years
The National Australia Bank published its Forward View on the economy on Wednesday and it was sobering reading.
"On GDP we now expect growth to slow to below 1.0 per cent over the next two years," NAB noted.
"This includes some very soft quarterly growth in the back end of 2023 and is well below trend growth of around 2.25-2.5 per cent."
Specifically, the bank forecasts the economy (real GDP) will grow at 0.8 per cent in 2023, and 0.9 per cent in 2024.
A slowing in the retail sector as shoppers tighten their purse strings will be, the bank thinks, the main driver of this growth funk.
NAB keeps track of retail spending, and in a separate report — NAB Monthly Data Insights October — revealed, "consumer spending softened in October, down 0.3 per cent, ending a run of nine months of positive growth".
"Our monthly spending data showed a slowing in spending in October, particularly in discretionary areas such as household goods and recreation & travel, although growth held up in the hospitality sector," NAB chief economist Alan Oster said.
Interest rates expected to keep rising
The household financial pain caused by rising interest rates is central to the NAB's outlook for the economy.
It expects the Reserve Bank will keep raising interest rates into next year.
"We now expect a cash rate peak of 3.6 per cent in March 2023, with the RBA holding rates at that level until early 2024," the report reads.
NAB believes this will achieve the RBA's aim of slowing growth to a point where inflation subsides.
That will, however, involve an increase in the unemployment rate.
"We expect unemployment to gradually pick up in 2023 and 2024 as slowing economic growth weighs on labour demand and migration picks up," NAB noted.
"We now see a rate of around 4.5 per cent by late-2024, although importantly we are not forecasting any outright declines in the level of employment."
NAB is forecasting a significant slowdown in economic growth over the next two years that most Australians will feel in some way.
Signs of slowdown already emerging
Business turnover fell in seven of 13 selected industries in September 2022, according to the ABS.
Among those industries to see reduced activity: retail turnover dropped 0.8 per cent from August to September, and manufacturing turnover slipped 1.5 per cent over the same period.
The AMP goes further in its warnings on the economy.
Chief economist Shane Oliver has placed a 40 per cent chance of the economy slipping into recession, which it describes as a "high" chance.
The Reserve Bank has maintained for many months now that the economic wild card is how shoppers ultimately respond to the higher cost of fuel, energy and food prices, as well as rising interest rates.
Data from Commsec and the ABS highlight how much sharply the cost of living has risen in recent years.
In the September quarter of 2017, the ABS estimated that average weekly household expenditure totalled $1,594.18.
CommSec now estimates that the average family spent $1,835.47 a week in September quarter 2022.
That is a 15 per cent increase in household weekly spending over a period of five years.
Australians are spending the most money on new dwellings, as well as gas and electricity.
The rising cost of food is also drilling a hole in millions of household budgets.
CommSec said households, on average, spent $305.04 a week on food in the September quarter.
It said households on average have been spending $25.52 a week extra on food this year, which is an increase of 9.1 per cent on last year.
Many working-age Australians appear to be taking on more than one job to help make ends meet.
In the June quarter, for example, the number of people that were multiple job holders rose by 37,100 in the quarter, or 4.3 per cent.
Almost 900,000 working-age Australians now have more than one job.