NAB’s World on Two Pages – November 2021

We have trimmed our global economic forecasts this month to 5.7% for 2021, however should this occur, it would still be the strongest rate of growth since 1973. For Australia, our internal data and NAB Monthly Business Survey indicate the economy is again rebounding strongly as NSW and Vic reopen following the extended lockdowns through mid-2021.

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Global

We have trimmed our global economic forecasts this month to 5.7% for 2021, however should this occur, it would still be the strongest rate of growth since 1973. That said, a range of headwinds to growth have emerged recently – adding to COVID-19, which remains the key risk to our outlook. Inflationary pressures continue – with double digit growth in producer prices in September – reflective of disruptions in global shipping, shortages of key inputs, labour and energy (most notably the electricity shortages in China in September and October). While major central banks continue to identify these inflationary pressures as transitory, a few emerging market central banks, along with Norges Bank and the Reserve Bank of New Zealand, have started to lift rates, while markets have brought forward their expectations for advanced economy rate increases.

Australia

For Australia, our internal data and NAB Monthly Business Survey indicate the economy is again rebounding strongly as NSW and Vic reopen following the extended lockdowns through mid-2021. We have tweaked our forecasts for activity – now expecting a fall of around -3.8% in Q3 and a larger +3.0% rebound in Q4. This sees year-ended growth of 1.6% in 2021, but we expect well above trend growth of 4.0% in 2022 and more normal growth of around 2.3% in 2023. The unemployment rate should peak in the December quarter as both employment and participation recover, before resuming its downward trajectory, ending 2022 at around 4.2% and 2023 at 3.8%. In terms of inflation, we have revised up our profile in the near term, incorporating the stronger than expected Q3 result and some additional strength in prices due to ongoing supply impacts and still high goods demand.  We have also brought forward our expected path for the cash rate, now expecting ‘lift-off’ in mid-2023 and an ongoing steady normalisation through to end 2024. We also expect the QE program to be wound up in February 2022. Risks remain related to the pandemic, resolution of supply chain issues, and the pace of recovery and normalisation of goods and services consumption, as well as the impacts of potential new macro-prudential policies.

Find out more in NAB’s World on two pages (November 2021)