Global

The global economic outlook remains clouded by numerous factors, including lockdowns in a range of major population centres in China, the Russia-Ukraine conflict (and its impact on commodity markets) and the ongoing disruptions to supply chains. Global business surveys suggest that economic activity held up comparatively strongly in March, particularly outside of China and Russia. Our forecasts are unchanged; we expect that the global economy will grow by 3.7% in 2022 and then slow to a trend- like 3.5% in 2023. That said, there is near-term downside risk to our China forecast due to the current lockdowns. In addition, tail risks (such as a recession in a major advanced economy) have risen given the combination of an energy price shock and a tightening of policy by both monetary and fiscal policy makers.

Australia

For Australia, our forecasts are broadly unchanged this month, though we have tweaked our near-term GDP and inflation outlook and extended the forecast horizon to 2024. GDP is expected to grow by a strong 3.4% this year – supported by healthy growth in consumption and ongoing gains in business investment. In 2023 we expect growth to slow to 2.1%, with growth at around trend rates at 2.2% in 2024. Similarly, the labour market has been strong and is expected to strengthen further. We expect the unemployment rate to fall below 4% in coming months, reaching 3.5% by late 2022, and remain there through 2023. Wage growth is expected to pick up with the labour market at its tightest in half a century. We have slightly strengthened our near-term inflation outlook ahead of the Q1 CPI release. We see a core print of around 1.1% q/q (3.3% y/y) for Q1 which will see underlying inflation above the RBA’s target band for the first time in 12 years. We now expect a print of a similar magnitude in Q2 which would see underlying inflation peak at a very high 3.9% in the middle of the year. Notably, these forecasts and the RBA’s change in tone have seen us bring forward the first expected cash rate hike to June with follow-ups in July, August and November. We see a slower pace of increase in 2023 and 2024 but expect the cash rate target to reach 2.25% by the end of our forecast horizon. Overall, we continue to expect a very strong economic performance in the near-term, though the pandemic and conflict in Europe continue to pose risks.

Find out more in NAB’s World on two pages (April 2022)