The Australian economy will only grow a paltry 0.9 per cent this financial year, a new report says.

The Deloitte Access Economics’ Business Outlook report, released on Thursday, has raised concerns the Reserve Bank’s aggressive campaign of hikes to the cash rate has gone too far.

Economics partner and report lead author Stephen Smith says Deloitte is concerned the RBA has done too much already, especially – by the central bank’s own admission – because most inflation is being caused by supply side issues, which are largely immune from changes in monetary policy.

“The pace of inflation has peaked and is moderating, wage growth is not excessive and medium-term inflation expectations are not rising,” Mr Smith said.

“In that context, the RBA was right to pause at its meeting in early July and wait for more information about the effect of previous increases in interest rates.”

The report said while surprisingly resilient global economies have held off any immediate concerns of a recession, growth will still be slow in 2023/24.

But Mr Smith said the outlook was worse when removing the effect of population growth.

“A deep per capita recession is expected over the next two years,” says Mr Smith.

“In 2025, economic activity per person in Australia is expected to be around the same as in 2021, indicating that prosperity has stalled.”

Deloitte Access Economics forecasts underlying inflation to average 4.2 per cent in 2023-24 and return to the RBA’s target band of 2-3 per cent in 2024-25.

“Overall, the profile for the normalisation of inflation is achievable with the monetary policy decisions already taken,” Mr Smith said.

“That is, unless circumstances change significantly, the evidence does not support any further increases in the cash rate target.”

He said the outlook across Australia’s states and territories reflects the deepening slowdown affecting the economy.

“Those in the southeast are relatively more exposed to higher interest rates and cost of living pressures given larger mortgages and the importance of the housing sector and consumer spending in supporting economic activity,” he said.

“However, the economic outlook has now also darkened for Western Australia and Queensland given China’s wobbly economic recovery from the pandemic.”

The RBA board next meets on August 1.

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By Rahul

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