‘Hit a wall’: Doomsday take on Australian economy

Consulting firm Deloitte released its biannual CFO Sentiment Report today, which takes the pulse of big business by surveying 84 chief financial officers.

It shows confidence has plunged on virtually every measure, with 43 per cent of CFOs pessimistic about the outlook for the national economy and 20 per cent concerned about their own businesses’ short-term financial prospects.

A tiny 14 per cent of CFOs think now is a good time to take on fiscal risk – the lowest level in more than a decade and a sign of how serious unfavourable conditions are viewed in the business world.

“CFOs are having a bruising time of it,” the grim Deloitte report reads.

“Six months ago, we saw CFO optimism in their own business prospects fall sharply as the weakening economic climate began to bleed through to business activity. But there was hope the economic cycle may turn for the better.

“Fast forward to today and the economic headwinds remain strong. CFOs are hunkering down and facing difficult trade-offs as they navigate a path through the economic storm.”

Among those painful decisions being mulled by many is job cuts – 40 per cent of respondents expect a reduction in headcount over the coming year.

That’s up sharply from 26 per cent just six months ago.

The major drivers of low confidence are higher interest rates and still-hot inflation, with CFOs expecting both will stay elevated for longer.

“Sentiment in the outlook for the broader economy is extremely weak,” the Deloitte report reads.

Just 38 per cent of CFOs expect rates to be lower this time next year, with many “resigned to the view that rates are going to stay higher for longer”.

“Looking ahead, CFOs are walking a tightrope. While inflation is trending downward, September’s increase in quarterly inflation suggests the return to more typical rates of price rises may take longer than previously expected.

“In turn, CFOs have become more pessimistic about the outlook for interest rates.”

Australia has ‘hit a wall’

The country’s economy has “hit a wall” and the latest measures released by the Australian Bureau of Statistics are “bleak”, according to a leading pundit.

Andrew Hanlan, a senior economist at Westpac, told The Australian newspaper that the average household is struggling, paying a heavy price for red-hot inflation.

“The intense headwinds of high inflation, sharply higher interest and additional tax obligations are having a significant impact, leading to a sharp decline in real household disposable income,” Mr Hanlan said.

“Overall, the [latest economic] update is a bleak one for households.”

Aussies are also now battling against the biggest tax burden in history, the newspaper pointed out.

The household savings ratio – that is, the amount Aussies are able to squirrel away from a rainy day, fell sharply to 1.1 per cent in September from 2.8 per cent in June.

It’s now at its lowest level since 2007.

Cost-of-living pressures continue to bite but home loan repayments are having the biggest impact on budgets.

Of all major global economies, Australia is second to just the United States when it comes to the highest interest rates. But because the majority of mortgage holders here are on variable interest rates, the impact is much worse.

Economic growth grinds to a halt

The impact of high interest rates is being felt across the economy, with GDP in the year to September running at 2.1 per cent, Deloitte reports.

But OECD forecasts a total economic growth rate for the year of 1.9 per cent and a much flatter figure of 1.4 per cent in 2024.

Both are historically low numbers – and if not for one major factor, they’d be much worse.

“Despite growth remaining positive, strong net overseas migration is propping up the economy,” Deloitte’s report reads.

Consulting firm KPMG agrees, declaring the estimated increase of 630,000 to the country’s population driven by record-high levels of immigration has been a fiscal saving grace for growth.

“[It has] underpinned consumption and investment and has provided the government large volumes of unplanned tax revenues allowing a reversal of fortunes in budget outcomes,” KPMG said in its latest economic outlook.

Higher interest rates will continue to force households to tighten their belts, driving reduced spending over the coming year.

A recent IMF forecast also tips longer-term economic growth to remain flat.

And the OECD is forecasting Australia’s unemployment to tick upwards, reaching 4.4 per cent by mid-2025.

Treasurer Jim Chalmers insisted the alarming data emerging was largely to be expected – and the outcome the Reserve Bank was hoping for.

“The Australian economy is slowing in expected ways as an inevitable consequence of higher interest rates and global economic uncertainty,” Dr Chalmers said.

Aussies are concerned too

The state of the economy has many concerned about more than half of households are struggling financially, according to a new Essential Guardian poll.

The polling found 57 per cent of respondents are in financial distress and on reflection, just 26 per cent say 2023 has been a good year for them and their families.

Only 17 per cent of those polled say this year has been a good one for Australia. In stark contrast, 50 per cent say 2023 has been good for big corporations.

Tough times are having a significant impact on trust in governments and institutions.

The Essential Guardian poll found 51 per cent of people think the government has too much power. Only 36 per cent trust their state government and 34 per cent trust the federal government.

A huge number of Aussies aren’t hopeful of things improving anytime soon, with 32 per cent expecting next year to be worse.