Outlook 2022: in good health

The Australian economy is in very good health. Growth is strong, unemployment has fallen and economic activity has expanded to areas that have lagged the recovery, like services and domestic travel.

Broad sectoral conditions are also robust. Consumer fundamentals are the strongest in decades, and business investment expectations have risen to levels not seen since the end of the mining boom. Commodity prices are supporting the export sector, and policy settings, including interest rates, are very stimulatory. 

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But not every sector or part of the community is benefiting from this growth to the same degree. In fact, one feature of the pandemic is economic outcomes for some parts of the economy and labour market have been unusually divergent.

Internationally, advanced economies and much of Asia have rebounded with vigour out of then COVID-19-led downturn and that is likely to continue through 2022.

Some economies have lifted interest rates and the US Federal Reserve, as the global price setter of capital, is likely to follow in 2022. Australia will probably be a bit slower than that, but interest rates in general are likely to rise.

The main global economic challenge, apart from COVID itself, revolves around China. The world's second largest economy is growing at between 4.5 per cent and 5 per cent - a very solid result. But China's demographic outlook, as well as other challenges, imply a long-term trend to slower growth is likely to continue.

COVID-19 is unquestionably the largest single factor for the outlook. If the virus again causes widespread movement restrictions, border closures and consumer and business caution, the economic story could be interrupted.

But managed well, growth is likely to remain strong, unemployment low and interest rates on the up over the next year or two.

Richard Yetsenga is Chief Economist at ANZ

This story is an edited version of a presentation given to shareholders at the 2021 ANZ Annual General Meeting