Year of the Tiger: Roaring or Bellowing?

The Tiger economy

At a recent speech to the National Press Club, Reserve Bank Governor Philip Lowe was optimistic about Australia's prospects in 2022. This optimism is driven by strong GDP growth that saw growth outstrip the RBA's forecast to reach 5%, and strong jobs growth with the unemployment rate at 4.2% — the lowest rate since the resources boom.

The surprise inflation figures

While wages growth is "picking up", the forecast remains sluggish at 2.25%. Combined with a surprise spike in inflation (CPI) well above expectations at 3.5%, pushed predominantly by a sharp increase in petrol prices (32% over the past year) and the cost of constructing new homes, the purchasing power of Australians has declined.

Supply woes

The recent NAB quarterly business survey reported that 85% of firms report availability of labour as a constraint on output, while 47% reported availability of materials as a constraint — both records in the history of the survey. Supply chain problems, both in Australia and globally, are not anticipated to normalise for another 12 to 24 months.

When will interest rates rise?

RBA Governor Lowe stated: "Interest rates will go up. And the stronger the economy, the better progress on unemployment, the faster and the sooner the increase in interest rates will be." Westpac and AMP Capital were both forecasting the first increase to occur in August 2022.