NAB’s World on Two Pages – October 2021

We have revised our global economic forecasts lower – to 5.9% for 2021. For Australia, a very sharp fall in activity in Q3 is locked in however we continue to expect a solid rebound in Q4 , and strong growth continuing into early 2022.

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Global

We have revised our global economic forecasts lower – to 5.9% for 2021 (6.0% previously) and to 4.5% for 2022 (4.6% previously). That said, we expect quarterly growth in Q3 to be similar to that of Q2, helped by India where activity has recovered as COVID-19 countermeasures have eased. The downward revisions to the outlook are in part driven by the persistence of supply bottlenecks in the global economy; most recently this includes energy shortages and spikes in energy prices, which have led to production cuts, including in China. Higher energy prices will also weigh on consumers’ spending power. At this stage it is unclear how long these shortages will persist. Supply bottlenecks, along with shortages of key inputs and rising commodity prices, have contributed to inflationary pressures. Concerns over China’s property market have put downwards pressure on global equity markets and iron ore prices.

Australia

For Australia, a very sharp fall in activity in Q3 is locked in – we expect a fall of around 3.5% – concentrated in NSW and Victoria which were in lockdown for most of the quarter. We continue to expect a solid rebound in Q4 with both states on track to reopen early-to-mid quarter, and strong growth continuing into early 2022 such that the Q2 2021 level of GDP is recovered by Q2 2022. That sees through-the-year growth of just 0.8% this year, before a solid 4.3% rebound in 2022 and normalisation to around 2.0% in 2023. In the near-term, the unemployment rate may drift higher but will likely be a less reliable indicator with large fluctuations in both employment and labour force participation. We expect the labour market to resume its prior trajectory with unemployment declining to around 4.5% in 2022 and 4.0% In 2023. Still, we see a more gradual pickup in inflation due to the soft starting point for wage growth and lag in the pass through to consumer prices. Therefore, we continue to see rates on hold until 2024. However, the recovery will see the RBA taper bond purchases at a more aggressive pace after the next review in Feb-22. Risks remain primarily related to the pace of reopening, as well as the impacts of potential new macro-prudential policies.

Find out more in NAB’s World On Two Pages (October 2021)