Deloitte upbeat on outlook despite Omicron

A prominent economist expects Australian economic growth to remain above average in 2022, despite the challenges from the COVID-19 Omicron strain and faced with a softer Chinese economy, its number one trading partner.

Deloitte Access Economics economist Chris Richardson argues that Australia is “match fit” for fighting COVID, being well vaccinated and used to juggling lockdowns and other challenges thrown up by the coronavirus.

He said Australians are also cashed up with dollars left over from when the pandemic meant that money couldn’t be readily spent.

He is not in the camp that sees current conditions as matching the lockdown pain seen originally in the June quarter 2020 or with the Delta shutdown in the September quarter 2021.

“Omicron is awful, but for the first time in the coronavirus crisis it looks as if health and economic outcomes won’t be in exact lock-step with each other,” Mr Richardson told AAP.

Even so, he is not as upbeat as the Reserve Bank of Australia on the economic outlook for 2022, forecasting a growth rate of four per cent compared to the central bank’s most recent prediction of a 5.5 per cent expansion.

He said Omicron is weighing on everything from business investment to borders.

“In fact Omicron is moving so fast that we include an allowance that up to one half of the workforce in Australia spends an extra week being unable to work in the first half of 2022,” he said.

The latest quarterly Deloitte Access Economics business outlook believes the global economic recovery is showing signs of topping out, faced with a tug-of-war between vaccinations and new virus strains.

A lack of vaccinations among poor nations is also compounding risks.

“Progress against COVID – or the lack of it – remains central to the global economy, and it will for a while,” Mr Richardson says.

“That will leave global growth patchy in 2022, with the greatest success likely to go to the nations whose populations are triple vaxed.”

While inflation is on the rise globally, he expects pressures will remain temporary in Australia due to the slowdown in China and with price increases so far contained to a narrow range of products.

Mr Richardson says that gives the RBA the luxury of time before lifting interest rates, which it should take advantage of amid a highly uncertain environment.

But he expects wage growth gains and consumer price pressures will lift very slowly over time, particularly as the labour market tightens.

“Each time the nation has managed to get its nose ahead of COVID, the job market has exploded with the exuberance of a Labrador puppy taken for a walk,” Mr Richardson says.

“Even better, soaring job vacancies says there’s petrol left in the tank. COVID permitting, we see the unemployment rate flirting with four per cent by end-2022.

The unemployment rate was 4.6 per cent in November and is expected to fall to 4.5 per cent when labour force figures for December are released on Thursday.