Treasurer Jim Chalmers has revealed the “big issue” facing Australian households in 2023, amid widespread predictions of a further economic crunch in the months ahead.

Hundreds of thousands of home owners who fixed their mortgages at ultra-low pandemic-era rates face a financial dilemma in coming months as those terms end.

With mortgage rates rising from as low as 2 per cent to about 5 per cent in recent months, that means cash-strapped mortgage holders across the country will have to find hundreds – or sometimes thousands – of extra dollars in monthly payments.

“One of the big issues here is that a fifth of mortgages will become variable rate mortgages in 2023,” Dr Chalmers told Sydney radio 2GB on Tuesday.

“That will put a lot of pressure on people.”

He said the Reserve Bank’s 2022 string of consecutive rate rises would take some months yet to be fully felt in the Australian economy – likely until mid-2023.

“That’s when the interest rate hikes are expected to hit the hardest,” Dr Chalmers said.

Late last year, the RBA said about 35 per cent of Australian mortgages were on fixed-rate loans (including split loans).

About two-thirds of those will expire by the end of 2023.

“If interest rates were to rise by a cumulative 3½ percentage points from the beginning of the current tightening cycle to the end of 2023, almost 60 per cent of borrowers with fixed-rate loans would face an increase in their minimum payments of at least 40 per cent when they expire,” it said in its October financial stability review.

In November, financial experts advised home owners looking at a mortgage payment spike to consider refinancing up to three months before the end of their fixed term.

“Different lenders have a different appetite for different borrowers, and the process itself can take a bit of time,” David Hancock, financial planner and CEO of Montara Wealth, told TND.

“You want to be picking it up a few months ahead of time.”

But he said there were also opportunities for some borrowers, with banks in tough competition to find new business.

Economic challenges beyond Australia

Dr Chalmers is also concerned about other factors that will put pressure on Australia’s economy in 2023, foremost among them the surging COVID-19 outbreak in China.

The war in Ukraine – and how that will influence what happens in the United States, Britain and Europe this year – will also affect global interest rates.

“The Chinese situation is something that we’re monitoring really closely because with a wave of this size, and everything that it means for the Chinese workforce … that obviously brings a substantial amount of risk to those supply chains,” Dr Chalmers said.

“And that has implications and consequences for us here.”

Dr Chalmers said while the government was trying to bolster Australia’s supply chains, it couldn’t just flick a switch.

“We need to make our supply chain more resilient to these major global hits,” he said.

“There’s a process; we can’t just do that in one hit.”

Beijing last month announced it was scrapping strict “zero-COVID” measures in favour of a policy of living with the virus.

A wave of infections has since erupted across China after borders had been kept all but shut for three years amid a strict regime of lockdowns and relentless testing.

Experts in China predict three winter waves of COVID transmission  – the current one expected to peak within a fortnight, followed by others in late January and late February to early March.

Harvard University economics professor Ken Rogoff said China was a “wildcard” that could pull economies down two different paths, with the uncontrolled spread of COVID undoubtedly concerning.

But he said on the flip side, Chinese consumers could soon be back spending and travelling after years of restrictions, once the outbreaks died down.

However, a rapid burst in Chinese consumption could fuel inflation and put more pressure on central banks, Professor Rogoff said.

The result might be economic conditions that were worse than expected in 2023.

“It could go in either direction, but chances are it’s going to be worse,” he told ABC News radio.

Deteriorating economic conditions and higher interest rates are already slowing demand for Australia’s manufactured goods.

The Judo Bank Manufacturing Purchasing Manager’s Index returned another expansionary reading of 50.2 despite declines in output and new orders.

But Judo Bank chief economic adviser Warren Hogan said Australia’s industry was holding up better than the US, Europe and Japan.

“The latest PMI survey results are consistent with the Reserve Bank of Australia’s policy changes in 2022 effectively rebalancing the economy without causing a sudden downturn in activity,” Mr Hogan said.

-with AAP