One of Australia’s leading economists has warned households face another year of financial strain, with higher interest rates, falling property values, rising unemployment, expensive fuel and stubborn inflation combining to create a perfect economic storm.
The gloomy outlook was reinforced by a sharp sell-off on Wall Street, where companies tied to artificial intelligence recorded steep losses.
Businesses supplying data centres and producing microchips were among the biggest casualties.
Australians with superannuation invested in US equities could see their balances decline, although economist Leith van Onselen said there was no reason to panic at this stage.
‘It won’t mean much for our economy unless the market actually crashes, because the share market isn’t the real economy,’ he said.
Instead, he identified government spending as a more immediate source of pressure on Australian families, accusing Canberra of spending ‘like drunken sailors’.
‘The RBA is raising rates to try and get people to cut their spending and bring down demand, but unfortunately it’s hammering households, and the government’s still spending like drunken sailors,’ he said.
‘It’s a burnout economy. The government’s got its foot on the accelerator with its excessive spending, pushing up demand, and the RBA is hiking rates to try and counteract that. But unfortunately, it’s ordinary Aussies who are getting hammered.’
Leith van Onselen is forecasting a deeply difficult 2027 for many Australians
Property values have fallen sharply across Australia this year
Mr van Onselen also accused the government of drawing borrowers into the market before making major housing-policy changes, as property conditions deteriorated and prices declined nationwide.
‘The people I worry about the most are recent first-home buyers who purchased using the 5 per cent deposit scheme,’ he said.
‘The government has done them dirty because they said, “Hey, buy with this 5 per cent deposit scheme, blah blah blah”, and they sucked a whole bunch of people in, and then they exacerbated the downturn in prices with changes to negative gearing and capital gains tax.
‘Those kinds of changes aren’t necessarily bad things, but they need to happen in the right way. The sequencing of it all was very poor. They sucked a whole bunch of marginal borrowers in and then pulled the rug out from under them.
‘A lot of those people are going to be facing negative equity. It’s an absolutely awful situation.’
He said recent redundancies at major employers including David Jones and Canva could be an early sign of broader job losses to come.
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‘Because of the rising costs, firms are going to have to cut costs, and cost-cutting means people-cutting,’ he said.
‘When you get five rate hikes, you’re going to get a rise in unemployment. The RBA and the major banks have forecast higher unemployment. In fact, it’s pretty much forecast everywhere that it’s going to go above 5 per cent next year.’
Mr van Onselen said further layoffs, like those recently reported at David Jones, were likely
Australia’s mining industry is under severe pressure as the diesel shortage continues
Mr van Onselen accused the Albanese government of spending money ‘like drunken sailors’
Mr van Onselen said the rapid development of artificial intelligence would add to uncertainty in the jobs market.
‘We still don’t know how that’s going to play out, but it’s a risk to jobs because firms will increasingly use AI to replace tasks performed by workers in certain areas to save costs.
‘The AI boom is also a challenge because you’ve got the data centre build-out, which is increasing shortages of building materials and drawing construction workers away from housing and infrastructure projects, as well as driving up the global cost of computer chips. That’s feeding into inflation everywhere because computer chips are used in so many products.’
He also predicted the international fuel crisis could become more severe next year.
‘The global fuel crisis raises the prospect of prices rising even further, especially when it comes to diesel.
‘Australia is the most diesel-dependent economy on Earth. We’re the biggest importer and the biggest user. Mining, transport and construction all depend on it, and there’s the prospect of actual shortages, whereby firms, farms and miners can’t get as much diesel as they need, and therefore have to cut output, which will then flow through the whole economy.
‘At the same time, people’s wages are going backwards, so their purchasing power is falling, and that’s forecast to continue for the next year too. Once you adjust for inflation, wages are going to be tracking where they were in 2011, down more than 5 per cent from their peak.
‘The whole economic situation is absolutely disastrous; there’s no point mincing words.’
Although Mr van Onselen said he did not expect widespread home losses before Christmas, he warned the new year could bring further rate increases, creating fresh trouble for mortgage holders once the holiday period ends.
‘It’s been a brutal few years, and unfortunately, I think next year is going to get worse,’ he said, highlighting the particular risks facing recent borrowers.
‘A lot of people who purchased six months ago, at roughly the peak of the housing market, are facing a situation whereby, especially if they purchased with only a 5 per cent deposit, they’ve taken on a big mortgage relative to income, seen five rate hikes, and had mortgage repayments increase massively while house prices are tanking.’