Household spending power will not back to pre-pandemic levels until 2030: Deloitte
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The news: Australians' financial positions have been so depleted by inflation that Deloitte Access Economics is forecasting it will take until the 2030s for pre-pandemic levels of spending power to be returned.
That is despite expectations for 75 basis points worth of rate cuts from the Reserve Bank in 2025 and a subsequent 75 basis points of cuts in 2026, returning about $8000 to an average mortgage holder on a variable rate loan.
The report warned that the nation’s productivity performance is “cause for alarm” with economic output per hour declining since 2020 and not shifting much over the last decade.
The numbers: Deloitte is forecasting headline inflation to drop to 2.7% in 2025, with underlying inflation at 2.6%. Wages are expected to finish up 2024 at 3.7%, before growing 3.3% in each of 2025 and 2026.
Real GDP is likely to have finished 2024 at 1%, with nominal at 3.7%. In 2025 the economy is tipped to expand 1.6% in real terms, followed by 2.3% in 2026, 2.7% in 2027 and 2.7% in 2028.
Driving the recovery is an expected cut in interest rates in the first half of 2025.
The unemployment rate is expected to rise to 4.4% this calendar year and peak at 4.5% the year after.
What they said: “After a sluggish 2024, Australia’s economy looks as though it may be past the low point for this economic cycle, with the combination of a strong labour market, falling inflation, tax cuts, emerging real wage gains and imminent interest rate cuts contributing to a better-than-expected outlook in 2025," said Deloitte partner Cathryn Lee.
"However, ‘better-than-expected’ is not the same as ‘good’, as has been revealed by escalating business insolvencies, considerable mortgage stress and a deep per capita recession. Indeed, nobody should get overly excited or complacent. The reality is that the Australian economy remains beset by challenges.
“Real wages are now grinding higher, but it is likely to be 2030 before Australian workers recover their pre-pandemic purchasing power. Dwelling construction activity is unlikely to get any worse, but Australia’s housing crisis is likely to persist. And while business investment was a key feature of the economic recovery after the pandemic, it has since faded."
Treasurer Jim Chalmers said in a media statement that the Deloitte report “makes it clear the soft landing we have been working towards is looking more and more likely”.
He said inflation is down, while wages are up and unemployment has been kept low.
“We’ve also made substantial progress in the budget cleaning up the mess we inherited with two surpluses, a smaller deficit, a $200 billion fiscal turnaround, $177 billion less debt and significant progress managing the key structural spending pressures,” he said.
He said the government was not complacent as there are “risks to growth coming at us from around the world, including from conflict, trade tensions and weakness in the Chinese economy”.
The sources: Deloitte Business Outlook December 2024, Treasurer media statement
