Deloitte Warns of ‘Recession-Like’ Conditions for Australian Households

Protesters during the March for Australia rally against government migration policy in Sydney, Australia on Aug. 31, 2025. AAP Image/Dean Lewins

Deloitte Access Economics has warned that Australian households will continue to experience “recession-like” conditions even if the national economy avoids an official downturn.

In its latest Business Outlook report, the consultancy firm cautioned that strong population growth cannot make up for the country’s stagnant productivity gains.

Downgrading its growth forecasts for a second consecutive quarter, Deloitte now projects Australia’s economy to expand by just 1.7 percent in 2027–28 and 2.1 percent in 2028–29.

The forecast follows the Reserve Bank of Australia’s decision to lift the cash rate to 4.6 percent on Sept. 29, its fourth increase this year.

Rate Hikes Squeezing Mortgaged Households

Report author and Deloitte partner Stephen Smith said a near-term recession was not expected because the drivers of growth—including government spending and data centre construction—are largely unaffected by higher interest rates.

However, this leaves the Reserve Bank with limited tools, forcing it to cool demand primarily by pressing harder on lower-income households, mortgaged households, and residential construction.

Deloitte expects another 25 basis point rise in November, bringing the cash rate to 4.85 percent. The firm estimates that five rate rises this year will add about $9,000 a year in interest costs to the average new owner-occupier loan.

The Productivity Trap

Addressing population trends, Smith noted that Australia’s pre-pandemic growth increasingly relied on adding people rather than improving worker output.

According to Deloitte, labour productivity (growth per hour worked) averaged 2.0 percent annually between the 1990s recession and the 2008 global financial crisis. Between 2008 and the pandemic, that rate dropped to 1.2 percent.

“Australia has mistaken a larger economy for one which is more prosperous,” he said.

He emphasised that the critique is not an argument against migration, which he described as one of Australia’s core economic strengths, but rather a warning that population growth only delivers sustainable prosperity when supported by adequate housing supply, faster planning approvals, and deep capital investment.

Growth Powered by Overseas Migration

The commentary comes as Australian Bureau of Statistics (ABS) figures show the population grew by 1.4 percent in the 12 months to March.

Net overseas migration accounted for 292,100 of the 392,700 new residents, while gross domestic product rose by just 0.4 percent in the June quarter.

Looking ahead, Smith said external shocks, such as a worsening conflict in the Middle East and higher fuel prices could push inflation up and prompt further rate rises.

Combined with rising bond yields, these pressures raise the risk of a broader economic downturn by 2027, though Deloitte maintains that an outright recession remains an unlikely outcome.