December 17, 2021
NAB’s World on Two Pages – December 2021
For Australia the Q3 national accounts showed a smaller hit to activity than we had expected but we continue to see a very strong snap back in activity in Q4. Globally, advanced economy growth was robust in Q3, and a similar outcome is expected in Q4 albeit with a shift in the source of growth away from Europe towards the US and Japan.
Advanced economy growth was robust in Q3, and a similar outcome is expected in Q4 albeit with a shift in the source of growth away from Europe towards the US and Japan. The global composite PMI remained robust in November, but with stronger readings in advanced economies than emerging markets. Our global growth forecast for 2021 is marginally weaker at 5.6%. The global recovery is anticipated to continue into 2022 with growth of 4.4% expected (revised from 4.5%) while in 2023 we expect growth of 3.6% (previously 3.5%) which is around its long-term average. At the time of writing, it appears that the Omicron variant is more contagious than earlier variants, but the threat it poses to the outlook will depend on the combination of transmissibility/virulence and vaccine effectiveness which remains unclear.
The Q3 national accounts showed a smaller hit to activity than we had expected but we continue to see a very strong snap back in activity in Q4. With GDP rising 2%, we see the losses from the virus this year fully recovered by end 2021. A very strong rebound in the labour market is underway with the jobs lost since June more than recovered in November alone. Beyond 2021, we see above trend growth continuing through 2022 (rising 4.1%), supported by rebounding household consumption and further gains in business investment and dwelling construction. Government spending and incentives will also continue to provide support. We see growth returning to around trend pace in 2023. Alongside this, we see the unemployment rate falling to around 3.8% by mid 2023 – its lowest level in decades. This should see wage growth begin to lift and eventually feed through to inflation. While there are a number of uncertainties on the magnitude and speed of this pass-through, by mid-2023 we expect wage growth will have risen enough for the RBA to be confident that inflation will stay within the target band, allowing the Bank to begin normalising the cash rate. From there, we see rates rising around once a quarter, taking the cash rate to about 2% by end 2024.
Find out more in NAB’s World on two pages (December 2021)