Around 300,000 households are already spending more on their mortgage and essential living costs than they are earning and thousands more are expected to find themselves in similar circumstances in coming months as the financial squeeze from higher interest rates and inflation intensifies.
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In an outcome that it said "should shock all of us", leading economic forecaster Deloitte Access Economics has warned that around 15 per cent of owner-occupiers with a variable rate mortgage are set to be in "negative cash flow" by the end of the year.
And it predicts real per capita growth to stall in the next three years and expand by an average of just 0.8 per cent a year over the decade - the weakest outlook in 70 years.
Deloitte economics partner Stephen Smith said it was not just mortgage holders feeling the pinch but also renters, who were facing spiraling rental charges with little respite in sight.
"We think it is quite shocking that 300,000 households would be in that situation, and that is likely to get worse during 2023. Exactly how many it is hard to say for sure but even that 300,000 is a significant number," Mr Smith said.
The economist said the tough financial circumstances that have engulfed so many households did not bode well for the economy, which relies on consumer spending to generate much of its growth, forecasting a 'consumer recession' this year.
"We think households are really struggling at present," he said. "[They] are battening down the hatches in the face of some significant challenges to their budgets. The next 12 months may be a very soft period for consumer spending."
The International Monetary Fund last week downgraded its forecast for the Australian economy to expand by just 1.6 per cent this year but Deloitte is even more downbeat and predicts activity to slow to a meek 1.5 per cent in 2023.
Speaking at a media conference upon his return from meeting with the IMF, the World Bank and G20 counterparts in Washington DC, Treasurer Jim Chalmers said that government "understand[s] that Australians are under the pump".
"As interest rates have gone up, as the cost of rent, the cost of electricity has been higher than we'd like - for all of these reasons people are feeling the pressure," Dr Chalmers said, flagging that next month's budget will include some living cost relief for households.
The economic slowdown is coinciding with a big rebound in immigration which is helping drive population growth to its fastest pace in six years.
Mr Smith said the big migrant intake, which he estimates reached a net gain of 330,000 people last year, is helping to plug skill shortages.
But the large influx of people into a slowing economy also meant the economy was headed for zero per capita growth for the next three years, according to the Deloitte economist.
The Reserve Bank of Australia decided to hold the official cash rate steady at 3.6 per cent in April as it assesses the impact of the 10 rate hikes implemented since last May and developments in the global economy, particularly in the financial system.
But Mr Smith thinks the rate pause has come too late.
The Deloitte economist said the two rate rises in February and March were "too much" and were a key reason for the downgrade in Australia's economic outlook.
He warned that any further tightening of monetary policy would suppress consumer spending even further.
Consultancy KPMG is similarly downbeat about the outlook. In its quarterly assessment of the economy, it has forecast GDP to slow to 1.4 per cent by the end of the year and soft further to just 1.1 per cent by late 2024.
But both Deloitte and KPMG expect Australia to avoid a recession.
"We are not talking about a recession ... but a period of stagnation for economic growth per capita," Mr Smith said, predicting interest rates to begin going down late this year or in early 2024.