Pete Wargent blogspot


'Must-read, must-follow, one of the best analysts in Australia' - Stephen Koukoulas, ex-Senior Economics Adviser to Prime Minister Gillard.

'One of Australia's brightest financial minds, must-follow for accurate & in-depth analysis' - David Scutt, Markets & Economics Editor, Sydney Morning Herald.

'I've been investing 40 years & still learn new concepts from Pete; one of the best commentators...and not just a theorist!' - Michael Yardney, Amazon #1 bestseller.

Wednesday 7 December 2022

Rapid rate hikes to crunch Aussie economy in 2023

Economy to tank next year

There was an unprecedented quarterly change in household payments in Q3, as the first rate hikes begin to hit home.

Of course, there is much worse to come, with the RBA having further hiked interest rates since in October, November, and December. 

Adding to this, Australia's terms of trade are now beginning what has every potential to be one of the biggest instances of mean reversion in their history.

The terms of trade fell 6.6 per cent in Q3. 

The household saving ratio continued to decline, down from recent highs of above 20 per cent to 6.9 per cent. 

After adjusting for super contributions and three further interest rate hikes, the consumer expenditure boom is basically cooked by the first quarter of next year. 

In the event, the Aussie economy missed expectations in growing by just 0.6 per cent in Q3, with GDP per capita increasing by 0.4 per cent. 

The growth in the September quarter was still largely driven by consumption growth and construction, albeit this trend is now running out of gas. 

Nominal GDP held up at record highs, but commodity prices are likely to drag next year. 

The quarterly implicit price deflator was only 0.2 per cent, but that was largely due to the decline in the terms of trade (the domestic final demand IPD was 1.8 per cent, reflecting consumer price increases). 

Overall, this was a weaker than expected result, and adds to the growing weight of evidence for a pause in interest rates in February.