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Rates tipped to start rising before wages growth and inflation accelerate

Across all Scope respondents, the average increase in wages to December this year is just 2 per cent before a modest lift to 2.5 per cent by December the following year.

Both Mr Koukoulas and Mr Norman expect wages to be growing well above 3.5 per cent by the end of 2022, but others are not so confident.

Leading economist Stephen Koukoulas believes the RBA will be lifting interest rates by late next year.

Leading economist Stephen Koukoulas believes the RBA will be lifting interest rates by late next year.Credit:Alex Ellinghausen

ACTU economist Margaret McKenzie is tipping wages growth of just 1 per cent, while HIA chief economist Tim Reardon, Australian Industry Group’s Julie Toth, CEDA’s Gabriela D’Souza and Newcastle University’s Bill Mitchell are all tipping growth of 2 per cent.

On inflation, both Mr Koukoulas and Mr Norman are expecting it to reach 3.1 per cent by the December quarter next year.

But they are alone in expecting an acceleration in consumer prices, with the median forecast across the group just 2 per cent after a similar result to the end of this year.

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The Scope members have heavily revised their forecasts for the overall economy in the wake of the Greater Sydney lockdown. Many had been expecting a strong finish to the end of 2021 but the ongoing lockdowns, which have now extended to NSW’s Hunter and Upper Hunter region and Melbourne, forced a re-think from many.

CIS chief economist Peter Tulip is tipping growth to the December quarter of just 1 per cent while the median forecast is 3.1 per cent.

Once, hopefully, clear of ongoing lockdowns the Scope panel’s median forecast for growth to the December quarter next year is 3.3 per cent.

Such solid growth, however, won’t translate into an improvement in the federal budget.

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The just-completed 2020-21 financial year is expected to show a deficit of close to $150 billion. For the current year, the Scope panel’s median forecast is for a $125 billion deficit, above Treasurer Josh Frydenberg’s May forecast of a deficit of $106.6 billion.

For 2022-23, the median forecast is $100 billion while for 2023-24 the median is $85 billion.

Among those prepared to forecast the peak level of federal government gross debt, none believe Australia will get out of the pandemic crisis with less than $1 trillion. AMP Capital’s Dr Oliver says it could reach $1.7 trillion.

Mr Koukoulas believes the budget could be back in surplus as early as 2026 but both Ms Hunter and Mr Eslake said it would never get back based on current policies, while Macroeconomics Advisory’s Stephen Anthony nominated 2075.

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