Economic outlook for Australia economy clouded says Deloitte Access Economics

Global tensions and a stalling homebuilding market are delaying interest rate cuts and creating a clouded economic view of 2024, with the jobs market likely to take a major hit.

More than 100,000 Australians will likely lose their jobs by the end of 2024, warns Deloitte Access Economics. Picture: AAP

The inflation beast may be tamed – for now – but global tensions and a stalling homebuilding market is keeping the central bank from starting its rate-cutting cycle and generating a clouded economic view of 2024.

But this will be countered by an estimated 100,000 people losing their jobs by year’s end.

The latest Deloitte Access Economics business outlook has argued that the economy is in a “holding pattern” and believes the Reserve Bank will not make a move on official interest rates until November.

It comes as Deloitte has also warned of stresses in the home building industry, a traditional engine of growth for the economy, but for the consumer there is some better news ahead with the extra cash delivered by stage three tax cuts to land in their pay packets soon.

Releasing the March 2024 edition of the flagship business outlook, Deloitte Access Economics partner and report lead author Stephen Smith said it had been six months since the RBA last lifted interest rates with inflation slowly receding, but official data suggested the labour market was yet to deteriorate.

“The case for lower interest rates is growing, but there is significant debate about the timing and extent of rate cuts. Our forecasts now include a first rate cut in November this year, based on an acknowledgment that a cautious RBA will likely want to see the September quarter inflation data, released in late October, before pulling the trigger,” Mr Smith said. He said the RBA was also keeping an eye on unemployment.

Deloitte Access Economics expects economic headwinds will finally take their toll on the labour market this year, putting more than 100,000 people out of work and increasing the unemployment rate to 4.6 per cent by year’s end.

“Labour market data released last week shows unemployment is on the rise again,” Mr Smith said. “We see the labour market as more of a concern and wage growth (and therefore services inflation) as less of a concern.”

This would be countered by more disposable income for those still employed due to the expected tax cuts.

“The second half of 2024 will bring the revamped stage three tax cuts and gradual improvements in real wages, much to the relief of households. What is a significant worry, however, is the housing crisis,” Mr Smith said.

“Australia has not been building nearly enough homes to keep pace with population growth. That’s been true not just since the pandemic but for many years prior to that.

“The number of houses under construction in Australia currently is around two thirds higher than the average seen over the decade prior to the pandemic. But this is not a good news story.

“That elevated level of activity represents a pandemic-­induced backlog of half-finished homes, and partly explains recent low levels of dwelling commencements.

“The construction industry, held up completing existing projects, is struggling to move onto starting new builds.”

Deloitte Access Economics expects the pace of dwelling commencements and, subsequently, dwelling completions will pick up over the next 18 months, but it will be no short-term panacea.

“Correcting Australia’s housing disaster will take years and, unfortunately for many, will require higher house prices in the near term,” Mr Smith said.

“The cost of land, materials and labour will stay at higher levels, while recent insolvency rates suggest builders will need bigger profit margins if they are to deliver the significant lift in dwellings that governments and the community are crying out for.

“In all likelihood, this is a problem that will get quite a lot worse before it gets better.”