Major central banks continue to tighten monetary policy in response to the highest inflation in decades, thereby straining household finances and leading to falls in asset prices. The duration and severity of the Russia-Ukraine conflict remains uncertain – negatively impacting energy and agricultural markets with the latter having the potential for prolonged impacts in low-income economies. Similarly, China’s public health response to COVID-19 presents ongoing risks to supply chains. Our forecasts are consistent with mild recessions in the US, UK and the Euro-zone. Overall, we see the global economy expanding by 3.2% in 2022 (previously 3.4%) and 2.9% in 2023 (was 3.2%). In 2024, we see a modest pickup, back up to 3.0%, however global growth is set to remain below the long run average of 3.4%.
For Australia, we have nudged up inflation in the near term, further front-loaded our rate track and softened growth in both 2022 and 2024. That sees unemployment slightly higher at the end of 2024. We have not changed our view on the underlying trajectory for the economy but see greater risk for household consumption on the back of higher rates and inflation. GDP is expected to grow by around trend pace over 2022 – 2.3% before moderating to 1.8% in each of 2023 and 2024. Both headline and trimmed-mean are expected to be slightly higher in 2022 with a very high 1.5% print for trimmed-mean likely in Q2. Both measures are expected to peak in Q2 at 7.2% and 5.4%, respectively, before easing through 2023. Consequently, we have included an additional 25bp increase in September for an earlier peak in early 2023. Below trend growth over the next two years sees unemployment rise to 4.3% after troughing in 2022 at a relatively low level. Global uncertainty remains elevated and a significant global downturn in 2023 would likely most directly impact through financial channels and trade – though the latter would be dependent on trading partner impacts. On the monetary policy front, inflation expectations remain a key risk to needing to move more quickly towards neutral.
Alan Oster, Group Chief Economist, NAB
Gareth Spence, Senior Economist, NAB
Antony Kelly, Senior Economist, NAB
Brody Viney, Senior Economist, NAB