‘Sharper, longer slowdown’ predicted for economy as fifth interest rate hike looms

‘Sharper, longer slowdown’ predicted for economy as fifth interest rate hike looms Australia’s central bank expected to hit mortgage holders again on Tuesday, as war in Middle East combines with collapsing house prices

Australia’s economy is set for a “sharper, longer slowdown”, major bank economists say, as the Reserve Bank is forced to keep interest rates higher to rid the nation of persistent inflationary pressures.

The RBA is widely expected to hit mortgage holders with a fifth rate hike on Tuesday, in a move that will push the cash rate to its highest since 2008 amid rising worries the economy could even be tipped into recession.

Belinda Allen, the head of Australian economics at CBA, said the extended Middle East conflict, collapsing house prices and a more aggressive central bank would drive real GDP down to just 1% by the middle of next year, nearly half the previous estimate of 1.8%.

Growth through 2027 would be barely stronger at an estimated 1.1%, according to the updated projections.

Allen said she had expected to see “signs of economic recovery” by the New Year, but now sees the economy “bottoming deeper and later”.

This more pessimistic outlook was “mainly given oil has been a lot higher than we had been expecting,” she said.

“Most people thought we would see a resolution to the Middle East conflict by now and oil [prices] looking more normal. Alas, that has not been the case.”

Instead, Brent crude, the global oil price benchmark, has surged from about $US72 a barrel in early July, to back above $US110 in recent days as the conflict broadens and hopes for a peace deal in the near future have all but disappeared.

After Jim Chalmers last month warned the December mid-year budget update would show a more pessimistic economic outlook, analysts at NAB also revealed a major downgrade to their forecasts.

Gareth Spence, the bank’s head of Australian economics, said “unemployment might need to rise higher than we thought” in order to get back under control – a view he said reflected recent comments by top RBA officials.