COVID 19 remains the main risk to the global economic outlook, while in Australia the key risks to our forecasts remain the timing and pace of the easing in restrictions, and further out, the underlying pace of growth as the impact of policy measures fades.
Growth was strong in both advanced economies and emerging markets in Q2 2021 but appears to have slowed in Q3 – in large part reflecting the impact of COVID-19 restrictions (particularly in China). COVID‑19 remains the main risk to the global economic outlook, with emerging market economies more exposed, due to their typically lower vaccination rates, than advanced economies. Inflationary pressures have increased globally since late 2020 – in part due to supply chain disruptions, shortages of key inputs and rising commodity prices. This is also acting as a brake on the recovery. Overall, we have revised down our global forecast to 6.0% for 2021 (from 6.2%) while our forecast for 2022 is unchanged at 4.6%.
As a result of the ongoing lock downs in Sydney and Melbourne, together with periods of disruption elsewhere, we expect to see a large hit to activity in the September quarter (down -3.5% in Q3 with only a moderate recovery of around 2% into Q4). This implies growth of around 0.8% over 2021, 4.3% over 2022 (the bulk of the rebound) and 2.0% over 2023. The labour market is set to retrace some of its recent gains, although hours worked rather than unemployment will be a better reflection of lockdown impacts. The near-term disruption sees the unemployment rate rise to around 5.2% in late 2021, before resuming its downward trend – reaching 4.4% by end 2022 and 4.0% by end 2023. The dip in activity sees an even longer period of spare capacity persist in the economy, and the partial reversal of recent labour market gains will delay the pickup in wage growth. For policy, expectations of a healthy activity rebound but gradual pickup in inflation sees us still comfortable with a 2024 lift-off for rates. The key risks to our forecasts remain the timing and pace of the easing in restrictions, and further out, the underlying pace of growth as the impact of policy measures fades.
Find out more in NAB’s World on two pages (September 2021)
After what has been a solid month for equities and bond investors, month end flows have probably play their part in the price action overnight, US equities have lost momentum, UST have led a rise in core global bond yields and the USD is stronger. US and European inflation releases favoured the notion the Fed and ECB are done with their respective tightening cycles.
Bond markets have been supported by some market-friendly data and while Fed speakers were again mixed, it was the more dovish remarks that captured attention.
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