The biggest events these experts say will shape Australia in 2022


As the end of 2021 draws near, despite the emergence of the Omicron variant there's an air of optimism about 2022.

Vaccine rates are continuing to climb, businesses that survived two years of uncertainty are reopening, the workforce is growing, state border restrictions have eased (although some states are reintroducing testing and/or isolation requirements in response to a rise in COVID cases), international travel is gradually resuming and there's an election on the horizon.

But will that optimism last? And what are the key economic trigger points to keep an eye on next year?

ABC News speaks to five leading economists about what they expect to happen in 2022.

COVID-19 is here to stay

As much as we might all be ready to move on from COVID-19, if the last two years, and recent weeks, have taught us anything, it's that the virus runs its own race and remains king.

"COVID is the main game," says Deloitte Access Economics partner Chris Richardson.

Deloitte Access Economics' Chris Richardson says COVID will continue to be the dominant factor driving our economy in 2022.(ABC News: John Gunn)

"When the economy was recovering to COVID free, that was magnificent, but it was fragile. And that was the story in the first half of 2021.

"The story for 2022 is likely to be a recovery off the back of booster vaccinations. Now that may not be quite as good as COVID free, but it should be much more reliable."

Chief Australia economist at BIS Oxford Economics Sarah Hunter agrees vaccination boosters are what's needed to help us get off the "roller-coaster ride" of 2021.

"The Omicron variant has definitely raised the level of uncertainty compared to a few weeks ago," she says.

"But, given vaccination rates and the initial reports of their effectiveness against severe disease outcomes, I'm more positive on 2022 compared to 2021."

A booster shot is now available to Australians five months after their second dose, with uptake expected to rise.

Chief Australia Economist at BIS Oxford Economics Sarah Hunter described 2021 as a "roller coaster" but is confident 2022 will be a smoother ride.(ABC News: John Gunn)

"It's still going to be there, we're still going to be living with the fallout, we're still going to be adjusting — but I think it's going to lessen over time, and we can already see that through the data," says Dr Hunter.

"The disease globally goes in waves and we can see that really clearly, if you look at the case numbers. But if you look at the economic impact of those, every time we get another resurgence, another wave, the impact on the economy lessens.

"So we're really learning to live with COVID, what it means, how we adapt to it, and how we tackle it, from an economic perspective, and also from a public health perspective."

The labour force recovery will continue

One of the biggest surprises for our economists in 2021 was how well the jobs market recovered after the Delta outbreak shut down New South Wales, Victoria and the ACT.

That momentum is expected to carry on into 2022 if lockdowns become a distant memory.

The unemployment rate is now the second lowest it's been in 13 years, at 4.6 per cent, after a record 366,100 jobs were added in November.

"An unemployment rate with a 4 handle on it is not something we've had for many, many years pre-COVID," says the Commonwealth Bank's head of Australian economics, Gareth Aird.

The Commonwealth Bank's Gareth Aird expects upside labour force pressures to continue in 2022.(ABC News: John Gunn)

"I think conditions in the labour market, notwithstanding the lockdown, look very good.

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"And I think that's a genuine surprise to the extent that we went through a large negative shock, which is COVID, but we're going to come out on the other side in better shape than we went into it."

There remains a lot of demand in the labour force, with the number of Seek job ads at the highest level they've been in 23 years, while the number of people applying for jobs is 53.6 per cent below December 2019 levels.

The expectation is that supply and demand tension will finally lead to a meaningful lift in wages.

"As we head through next year, the forward-looking indicators of the economy look very, very good," argues Mr Aird.

"A tight labour market means upward pressure on wages and we think, by the time we get to the end of next year, wages growth will be upwards near 3 per cent."

Dr Hunter's also expecting 2022 will deliver wage growth.

"Even in the public sector wages, we're starting to see the wage freezes that many of the state and federal governments put in place are being unwound, pay negotiations are happening and more significant increases are being baked in," Dr Hunter explains.

"So you put that together, that strength in the labour market and some robust growth in private sector wages, with public sector movements, the outlook for the overall index, I think is pretty positive and I do think we'll see wages growth pick up next year."

Inflation will increase

As the world continues to adapt to life with COVID, our experts say temporary spikes that have fuelled higher inflation will moderate.

"Petrol prices aren't going to keep going up over 20 per cent a year," notes Dr Hunter.

"Some of those indirect fallout's from supply chains, travel restrictions, limited migration, will to some extent still be there in 2022.

"The impact of these factors is likely to fade — there are already signs of this — but they're still going to be significant in 2022 and to be honest with you, going into 2023 too. But how we adapt to deal with and tackle these issues, I think is shifting."

AMP Capital Senior Economist Diana Mousina says what has, until now, been called transitory inflation is becoming more long term.

AMP Capital senior economist Diana Mousina expects global supply chain pressures will keep inflation high.(ABC News: John Gunn)

"There are definitely some supply chain issues that are going on in the global production cycle.

"But that could still last for another six months, so I don't know how long you can call that transient for if it's lasted for six to 12 months, that to me seems like a pretty persistent level of inflation."

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"I think that will still be affecting goods prices over the next year, and of course, the huge increase in demand that you've had from consumers for global goods, is also putting additional upward pressure on goods prices.

"As well as that you're now starting to see services prices are likely to increase as consumers shift their demand from goods towards services as the services economy reopens."

The increase in demand will continue to see the prices we pay for goods and services increase, leading to ongoing inflation.

Which is key for the Reserve Bank of Australia (RBA).

The official interest rate will (maybe) lift

Since it cut the official cash rate to 0.1 per cent in November 2020, the RBA has been saying it won't start to lift rates "until actual inflation is sustainably within the 2 to 3 per cent target range."

While trimmed mean inflation hit 2.1 per cent in the September quarter, the RBA's "central forecast is for underlying inflation to reach 2.5 per cent over 2023."

Based on that forecasting, the current cash rate will remain in 2022.

But some of our economists disagree.

Australia's central bank maintains it won't lift the official cash rate until wages increase and inflation is within its target band.(ABC News: John Gunn)

"We think the RBA will be hiking rates for the first time next year, for the first time for about a decade, and we think that that will start in November next year," forecasts Ms Mousina.

Mr Aird agrees the cash rate will lift by the end of next year, with increases of about 0.25 per cent each quarter after that.

"Ultimately, we think the cash rate ends at a pretty low level of around 1.25 per cent as we get through towards the end of 2023."

But Dr Hunter doesn't expect the cash rate to change just yet.

"I think we're probably looking at the first half of 2023, from where I'm standing right now, but we'll obviously see how things play out in the numbers as we go through the next 12 months," says Dr Hunter.

Independent economist, Nicki Hutley observes that banks are already moving on interest rates.

Independent economist Nicki Hutley says she has been encouraged by the outcomes of COP26.(ABC News: John Gunn)

"The way the financial markets are pricing interest rates, we're already seeing mortgage rates, at least at the fixed end, start to increase and creep up.

"My money would be on, if not 2022, then certainly early 2023 would be more likely for the first interest rate rise."

"It may be 2023," says Mr Richardson.

"But that will be a sign of success. It's only going to happen if the economy is strong enough for long enough and it should be welcomed when it arrives."

House price rises will slow CoreLogic data shows property prices rose 22.2 per cent in the 12 months to November 2021.(ABC News: John Gunn)

The record 22.2 per cent house price increase recorded nationally in the past year is unlikely to be continued, but price rises aren't over yet.

"Those monthly growth rates, which were incredibly strong through 2021, should moderate as we go through 2022," explained Mr Aird.

"As we head into through 2023 the outcomes that we get on the housing front will be very much linked to what the Reserve Bank does on interest rates."

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CBA is forecasting prices will increase another 7 per cent in 2022, before falling 10 per cent in 2023.

"House prices obviously have had a number of very unique one-off factors that have really driven them up over the last 18 months and certainly through the last year," adds Dr Hunter.

"We're already seeing first-time buyers are getting into the market less than they were compared with six to 12 months ago, mortgage rates are climbing and auction clearance rates are falling. 

"They are all signs that affordability is getting squeezed and that will naturally dampen the momentum in prices."

The election, climate change policies and relations with China

The Morrison government announced how Australia would achieve net zero carbon emissions by 2050 in late October, ahead of COP26.

"This really is the death knell for fossil fuels," Ms Hutley said.

COP 26 was a 'game changer' for government action on climate change, according to Ms Hutley.(AP: Branden Camp)

"It's a warning sign to governments that they need to be planning the transition, that they need to be supporting those communities that are going to be most affected by this, because we cannot continue to bury our heads in the sand."

She adds: "We are seeing something very significant happening here and of course COP 27 in Egypt next year is all about even more, an even firmer plan.

"So the pressure is on across all sectors of society, to see that change unfolding and I think it's a very exciting time."

Voters will go to the polls in early 2022.(ABC News: John Gunn)

Ms Mousina predicts the upcoming election will impact consumer sentiment.

"We tend to see that around the election, we can get some pretty large movements in consumer sentiment. So that could be one of the main things that drives consumer spending in the second half of next year."

She also expects the election will weigh on equity markets.

"It's another source of risk for share markets because share markets do still react and they can react aggressively to changes in leadership or even around volatility when it comes to elections."

Geopolitics, particularly with China, will continue to be a major issue next year.(AP Photo/Andy Wong, Pool)

Mr Richardson warns relations with our largest trading partner will be the biggest issue, after COVID, to impact Australia next year.

"While our attention was very much on COVID and the fight against it, relations with China went down, but also the Chinese economy began to slow," he observes.

"It's been slowing in ways that hurt the Australian economy, showing up in things for example, like a lower iron ore price, that will make it a more of a challenge.

"China, having been our friend in economic terms for so long, may not be as friendly to the economy in 2022."

Source: https://www.abc.net.au/news




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