'It'll feel like a recession': Australia headed for weakest growth since '90s

In a sobering assessment of the outlook, Deloitte Access Economics predicts the economy will expand by just 1.3 per cent in 2024 as weak household spending, soft business investment and challenging international conditions weigh on activity.

Report author Stephen Smith while the economy would avoid a technical recession, it would feel like one for many households.

Mr Smith said real household disposable income per person had plunged almost 9 per cent since the boost from government handouts during the pandemic.

And he warned even though inflation was set to fall further, real wages to rise and interest rates to potentially go lower, household disposable income per capita would take at least the next five years to return to long-term growth levels.

"The economy will be growing, but it will feel like a recession," Mr Smith said.

"Economic conditions will keep feeling pretty tough for a while yet."

By the end of the year the primary challenge will not be fighting inflation but "lifting the rate of growth", he said.

Treasurer Jim Chalmers said households remained under pressure and although there had been "welcome and encouraging progress" in fighting inflation, "it's not mission accomplished".

Dr Chalmers said the revised stage three tax cuts unveiled last week were part of the government's measures to provide cost-of-living relief without adding to inflation.

"We are realistic about the challenges facing our economy," the Treasurer said, but added the country was facing these from "a position of genuine strength", including strong employment, rising real wages and an improved federal budget.

But Nationals leader David Littleproud said the tax changes did "nothing to address the drivers of inflation".

"All that's done is pit one Australian against the other predicated on your wage or how much you earn, rather than actually look at the drivers and even putting in place temporary and targeted measures for low- and middle-income earners," Mr Littleproud told Sky.

"This is ... a short-term political fix for Anthony Albanese."

Deloitte forecast after dropping to a multi-decade low this year, growth will lift by 0.5 of a percentage point in 2025 to reach 1.8 per cent and top 2.2 per cent the following year.

At the same time, it expects inflation to slow to 3.4 per cent by the end of this year and fall within the Reserve Bank of Australia's 2 to 3 per cent target band in 2025.

Wages are expected to outstrip price rises this year, delivering hard-pressed households real income gains, though Deloitte tips the jobless rate will jump to 4.6 per cent.

Exports, which powered economic activity and government income in 2023, are expected to slow from 6.5 per cent growth last year to 2.2 per cent this year and just 1 per cent in 2025, dampened by weakness in some international markets.

By contrast, investment in housing, which has been contracting sharply, is expected to strengthen marginally this year before rebounding to almost 9 per cent in 2025 and above 10 per cent in 2026.