This year has been plagued with coronavirus concerns, lockdowns, a massive global economic recovery and then more lockdowns.
So, with just a few days left of 2021, CommSec chief economist Craig James gave his predictions for the year ahead.
James said the take up of vaccines across the country has allowed us to enter the ‘living with covid’ phase of the recovery, which will help propel the economy next year.
“The Australian economy is in good shape heading into 2022. The economy may have grown 4.4 per cent in 2021 and is expected to lift another 5.1 per cent in 2022,” James said.
‘Normal’ growth is around 2.5 per cent, James said, so 5.1 per cent growth would represent a large rebound.
“The cash rate remains at a record low of 0.1 per cent. The Reserve Bank doesn’t see that changing until 2023 at the earliest,” James said.
“But CBA economists believe the necessary prerequisites for a rate hike – covering inflation, wages and unemployment – will be met in the December quarter 2022.”
However, rising inflation is still a cause for concern after lockdowns interrupted supply chains and prices started pushing higher.
“Omicron is a new challenge and most likely there will be fresh challenges awaiting in 2022. With economies re-opening, central banks and governments are starting the process of winding back the extraordinary amount of financial and monetary stimulus,” he said.
“It is not just the fact that a process of ‘normalisation’ is underway. There is also the concern about inflation.”
Rolling shutdowns and lockdowns hit manufacturing production, reducing the amount of available goods, while consumers also opened up their wallets wanting to spend their extra cash.
“As a result, prices are rising. Central banks initially thought that the spike in consumer prices would be temporary, owing to supply disruptions and pent-up demand in lockdowns,” James said.
“But policy chiefs have since backpedalled from labelling price rises as “transitory” with annual inflation rates hitting multi-decade highs - well in excess of central bank targets of around 2 per cent.”