One of the nation’s biggest consultancy firms has painted a bleak picture for the year ahead, saying Australians are at the mercy of the central bank while warning of a possible recession.

Deloitte Access Economics says economic growth will slow dramatically in 2023 as the consumer-led recovery runs out of steam. 

Falling house prices, rising interest rates, high inflation, low levels of consumer confidence and negative real wage growth are expected to create a perfect storm of economic headwinds.

Deloitte Access Economics warned of the potentially devastating consequences if the Reserve Bank increased the cash rate again.

“Any further increases in the cash rate beyond the current 3.1 per cent could unnecessarily tip Australia into recession in 2023,” partner Stephen Smith said.

“At the same time, real household disposable income per capita – a key measure of prosperity – is falling, and will finish the current financial year at levels last seen before the onset of the pandemic. 

“There is no doubt that Australian households are starting to hurt.”

The damage won’t be spread evenly across the country as southeastern states with higher levels of consumption and pricey housing bear the brunt of the economic slowdown. 

Prime Minister Anthony Albanese said Australia had strong fundamentals that would protect the nation from worsening economic conditions.

He said demand for labour was robust, with the unemployment rate sitting at a near-50-year low of 3.5 per cent.

Inflation, which hit 7.3 per cent in November, is also on track to peak lower than the closer to eight per cent expected last year.

“We will continue to monitor the economy, which is very volatile globally, and we are exposed to a lot of those global issues, but the fundamentals here in Australia are still very strong,” he told Nine’s Today.

Mr Albanese said the government’s decision to intervene in energy markets would take the sting out of power bills in the short term, and policies such as cheaper child care and free TAFE places would support economic growth over the long term. 

Deloitte predicted headline inflation this financial year would come in at 7.2 per cent, while wages were tipped to grow at 3.5 per cent – less than half the inflation rate.

Wages were forecast to catch up to – but still lag – inflation in the next financial year, growing 3.7 per cent against consumer price rises of 3.9 per cent.

Deloitte expects real GDP growth to fall to 1.4 per cent in 2023-24, down from the 3.1 per cent tipped for this financial year. 

By Dominic Giannini and Poppy Johnston in Canberra