Policymakers expect Australians to enjoy their first Christmas in years unaffected by COVID restrictions and bushfires before being stung by inflation and interest rates in 2023.
Australian households are expected to embrace a “freedom Christmas” without COVID restrictions or bushfire smoke before enduring a financial hangover in 2023 as inflation and soaring interest rates almost bring the economy to a standstill., policymakers believe Australians will go on a spending binge at the first Christmas since 2018 unaffected by events that have curbed expenditure for the past three holiday seasons.
Barrenjoey chief economist Jo Masters said the savings buffer built up by Australians through the past two years was likely to be spent this Christmas, but next year will be much tougher. Australia’s retail sector has cheered the return to in-store shopping over the sales period, with some of the nation’s biggest operators reporting strong spending as consumers approach a restriction-free Christmas.
The spending of this Christmas, however, is expected to run into the reality of much higher mortgage rates, falling real wages and a global economic slowdown caused by central banks using interest rates to bring inflation under control.The Reserve Bank expects the share of household income spent on interest payments to reach record or near-record highs after falling to all-time lows when it had the cash rate at 0.1 per cent.
“Looking ahead, retailers are likely to face a difficult six months as they ring in the new year. With cost-of-living pressures and a mortgage rate squeeze clouding the horizon, retailers are growing pessimistic about the state of the consumer in 2023,” he said. “The recent devastating floods are another challenge, likely to both add to inflation and slow growth in the short-term, given already frustrated supply chains.”
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