NAB’s World on Two Pages – April 2021

High frequency indicators continue to point to a recovery in the global economy in early 2021. In Australia, the economic recovery continues at a brisk pace with forward indicators pointing toward ongoing strength in activity and the labour market, even as some fiscal support is wound back.

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In this podcast, NAB Chief Economist, Alan Oster gives you a 10 minute summary of the latest economic news.

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Global

High frequency indicators continue to point to a recovery in the global economy in early 2021 –despite slowing trends in emerging market (EM) manufacturing and the resurgence of COVID-19 in a number of regions resulting in the reimposition of restrictions. These disruptions to economic activity, along with delays in the widespread administration of COVID-19 vaccinations, means that the global recovery will continue into 2022, before growth slows to 3.5% in 2023. Advanced economies (AEs) are expected to record weak growth overall in Q1 with COVID-19 continuing to cause disruptions, but growth is expected to accelerate from Q2 onwards on fiscal stimulus and wider vaccine penetration. Trends differ widely among EMs, with EM Asia generally outperforming other regions in part due to the global demand for electronics.

Australia

In Australia, the economic recovery continues at a brisk pace and forward looking/high frequency indicators point to ongoing strength in activity and the labour market even as some fiscal support is wound back. While our NAB data shows some softening in consumption growth, the NAB Business Survey showed ongoing strength in March pointing to solid underlying momentum in the economy and the labour market. While employment has now more than recovered its pre-COVID level and we see GDP as fully recovering its pre-COVID level in Q1, a large degree of spare capacity remains in the economy. The unemployment rate remains above its pre-COVID level and the labour market is unlikely to be close to its full employment level (NAIRU) for an extended period. The key implication of ongoing slack in the labour market and the economy more broadly is that wages growth and core inflationary pressure will remain soft. This points to ongoing easy monetary policy, and possibly the need for further fiscal support. That said, the faster than expected rebound in activity and the unfolding recovery in the labour market suggests that the RBA cannot credibly commit to unchanged rates – according to the YCC program – beyond the April 2024 bond. Consequently, we expect an announcement on tapering YCC by August, but for the RBA to enter a 3rd round of QE ($100bn) and for the cash rate to remain on hold until at least early 2024.

Find out more in NAB’s World on two pages April 2021