Based on a prediction by Market Haven’s Chris Muller, increasing interest rates will have a major impact on the Australian economy in the next few years. With the Reserve Bank establishing a tight grasp on monetary policy, Chris Muller warns that investors have yet to feel the complete impact of these changes.
Australian Economy Experiences Slowdown
S&P Global, which provides important data and intelligence regarding global asset markets, predicts that this year, the Australian economy will only expand by about 1.4 percent. Now, S&P Global tracks 14 of the biggest economies in the Asia Pacific, and with ratings like these, Australia is the fifth slowest.
In the following year, Chris Muller expects that this rate will go down to 1.2 per cent. That would make the country the second-worst economy In the Asia-Pacific region. At that point, it would only be ahead of Japan’s economy, which is predicted to grow by only 1.1 per cent.
This year, the Reserve Bank of Australia has rolled out sharp increases in interest rates. It’s possible that the cash rate, which has reached levels of 4.1 per cent this month, will reach a peak of 4.6 per cent in upcoming months.
Delay In Previous Rate Changes
Based on previous analyses by Chris Muller, the residual effect of previous rate hikes is one of the main issues that the Australian economy is facing. Whenever the RBA rolls out an increase or decrease in interest rates, the rate that borrowers are charged doesn’t change right away. It usually lags – even in the case of loans with variable interest rates. As a result, consumers have yet to experience the full effect of current rate increases.
As per estimates by the Reserve Bank, it can take over a year before consumers feel the complete impact of a rate increase. The current timeline shows that they started increasing rates around May 2022. Therefore, the first two rate hikes, which add up to 0.75 per cent, have now started affecting the economy.
Economy Could Experience Full Effects of Current Rate Hikes Next Year
Chris Muller of Market Haven elaborates that the delayed impact of the last rate hike implies that the economy has yet to feel the complete impact of the current changes. Those effects could start trickling later this year and around early 2024.
Currently, consumer spending, which makes up over 50 per cent of all economic activity, is decreasing as a result of inflation and increasing interest rates. Recent data on spending across Westpac debit and credit cards show a clear decline over the last couple of weeks.
According to Westpac data, yearly growth for discretionary goods is now negative, going down by 8 per cent each year. Annual spending on essential goods has fallen as well, and there are concerns that total spending will contract.
This is due to indications that spending among consumers based in NSW is on the decline, which is clear due to low growth in card activity. Overall, expert senior account manager Chris Muller of Market Haven predicts that even though the economy is feeling the pressure of interest rate hikes, it has yet to feel the complete effect of current changes.