Global

The conflict between Russia and Ukraine has caused a significant spike in energy prices – reflecting the importance of Russia in the production and export of oil, natural gas and coal, in combination with limited additional supply elsewhere. In addition, the conflict triggered a broad decline in equity markets, along with increased volatility in financial markets more generally, with expectations of global monetary policy also shifting since mid-February. The duration of the conflict, and the resulting impact on energy prices, is highly uncertain – however it is clear that energy prices will remain elevated in the near term.

Australia

Based on recent upside surprises in the data, we now expect a lower unemployment rate and higher inflation in the near-term, while our forecasts for activity remain broadly unchanged. The Q4 national accounts confirmed that consumption rebounded very strongly as the Delta lockdowns eased. We expect ongoing strength in overall consumption spending (albeit slightly disrupted in Q1 by Omicron and, more recently, floods). We continue to see dwelling and business investment as well as government spending supporting growth in the near term, while trade is expected to be a small drag on growth. Overall, that sees growth of 3.4% during 2022 and closer to trend growth of 2.1% in 2023. The strength in activity and strong labour demand points to the unemployment rate declining further. We now see the unemployment rate falling below 4% by March and reaching 3.5% by mid-2022. This will eventually see a strengthening in the pace of wage growth. We also expect strong inflationary pressure to persist in the near-term and have revised up our forecasts for the CPI to around 1% in both Q1 and Q2 – taking the year-ended rate to 3.7% by mid-year. As a result, we have also brought forward our cash rate profile, with the RBA expected to lift the cash rate by 15bps in August, with 25bp follow ups in September and November. With the war in Europe posing risks on both the activity and nominal sides of the economy, uncertainty is now highly elevated – but the central-case for Australia’s economy largely remains strong.

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