Floods, omicron and shortages tipped to stifle economic growth
“Growth in 2022 is likely to be concentrated in Q2 and Q3 … The final quarter of the year is likely to see an emerging loss of momentum as rising interest rates, in response to a significant inflation challenge, begin to impact.”
Wednesday’s national accounts will be Treasurer Jim Chalmers first in the role, and economists will be listening closely to how Dr Chalmers shifts the narrative, which under Josh Frydenberg was almost always optimistic.
Labor inherited an economy rebounding strongly out of the COVID-19 pandemic and an unemployment rate at a 48-year low 3.9 per cent; but also one being buffeted by global forces beyond its control and strong inflation.
In his first week, Dr Chalmers rejected the idea that the economy was performing well, saying that “would be news” to people experiencing real wage cuts.
“We’ve got skyrocketing cost of living, we’ve got falling real wages, we do have international uncertainty, and we’ve got that trillion dollars in debt,” he said.
Yet consumer spending is expected to bolster GDP over the middle six months of the year as households reduce their ratio of income to savings, and start to spend built-up pandemic savings.
According to the latest data from the prudential regulator, households have amassed an additional $275 billion, or 27 per cent, in deposits since the start of the COVID-19 crisis around January 2020.
Monthly retail sales rising every month from January to March, and strong car sales – up about 12 per cent – will ensure consumer consumption makes a positive contribution to quarterly GDP. So, too, will ongoing government expenditure on healthcare in response to the pandemic.
Working against this was weaker than expected business spending on plant, equipment and machinery – up just 1.2 per cent; and weather, supply chain challenges and skills shortages constraining residential construction.
Economists are mixed on inventories outcomes. Westpac is tipping a flat quarter following strong growth towards the end of 2021, while CBA is forecasting strong inventory growth to add 0.3 percentage points to growth.
Westpac and CBA are as one on their expectations for net exports, however. Both expect it will subtract 1.4 percentage points from GDP, driven by a surge in consumer good imports and a slip in the quantity of resources exported.