Welcome to 2022, a yr wherein predictions in regards to the economic system are going to be replete with caveats of “assuming nothing else occurs”, which the previous two years have proven is a silly place to take.
However not less than we will be sure 2022 could have a federal election. We all know this not simply because the structure calls for it, however as a result of the most recent mid-year financial and monetary outlook (Myefo) contained a report $16.9bn in “selections taken, not but introduced”.
This entry within the price range papers is often massive earlier than an election, however the Morrison authorities in 2018 and final month has taken it to extremes:
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So prepare for something – from one other spherical of automotive parks to tax cuts – to assist sway votes.
We additionally have to prepare for lots of speak about how sturdy the economic system is.
Everytime you hear this discuss, keep in mind two issues – rates of interest are at report lows and the price range deficit is bigger than it was through the world monetary disaster:
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This isn't a foul factor – the very last thing we'd like is a price range surplus, particularly when the price of authorities borrowing stays at historic lows:
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We'll little question hear speak about needing to chop spending and dwell inside our means and return to surplus. And but all of the whereas, the power to put money into infrastructure and renewable vitality stays as low-cost because it was on the final election when authorities debt was $300bn decrease.
However what the report low rates of interest and close to report deficit means is that speaking in regards to the energy of the economic system is a bit like measuring how excessive somebody can leap whereas ignoring that they're utilizing a trampoline.
Clearly Covid has additionally had an enormous influence on how we view the economic system – and the election marketing campaign.
Whereas there had been some small likelihood of an early March election, as soon as Omicron got here alongside the prospect of an election earlier than Anzac Day diminished vastly:
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As Scott Morrison decides we have to “push by way of,” the query is: what does the long run maintain for the economic system and its influence on the election?
Clearly the influence is massive and abrupt.
Final November ANZ financial institution’s chief economist was predicting: “Within the subsequent six months we’re in for a little bit of an financial growth.”
Now ANZ is saying we're spending so little it's like we're appearing as if we're in a lockdown.
Retailers usually like to speak a couple of huge Christmas, and the Australian Retailers Affiliation tipped a “report $21 billion to be spent in post-Christmas gross sales” however that prediction was made in early December – earlier than Omicron took maintain.
Few retailers could be boasting about how nice issues are proper now.
Oddly, the Omicron surge has had virtually no influence on forecasts for rates of interest.
In early November the market predicted the Reserve Financial institution of Australia would improve the money charge to 0.25% by June, and it could be as much as 0.75% by this time subsequent yr.
That expectation stays unchanged:
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This means a slight likelihood of a charge rise within the first week of Might, which will surely be an fascinating remaining twist to the marketing campaign.
Any improve, although, would have to be justified as a result of inflation will increase.
Right here we do strike one other Omicron snag.
The following official inflation knowledge that comes out in two weeks will solely cowl as much as December – thus lacking out on any value rises which can be occurring as a result of labour-supply constraints.
Any present value rises will solely be registered within the shopper costs index launch within the final week of April – making it one of many huge financial knowledge releases anticipated through the marketing campaign, adopted by price of dwelling knowledge within the first week of Might.
Given how price of dwelling dominates election discuss, that may very well be an disagreeable level for the federal government – particularly if the figures counsel the RBA wants to extend charges on 3 Might.
As it's, the inflation expectations stay fairly subdued – and definitely not at a stage that requires the Reserve Financial institution to behave:
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Importantly, the Reserve Financial institution is as involved about wage rises as it's inflation.
On this rating, the December Myefo would have you ever consider good instances are forward, as a result of it forecasts wages to develop by 2.25% within the 12 months to June this yr, earlier than rising to 2.75% subsequent yr after which 3% in 2024:
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Nonetheless, given the federal government doesn't see unemployment falling from June 2023 to June 2025, that does seem like a quite optimistic view of how wage rises work.
And given there are already recommendations that the Omicron wave will dampen wage progress for a bit longer, as enterprise stays cautious of individuals staying away, it may additionally be a bit quickly to be begin banking that pay rise.
All of it makes for a bizarre election marketing campaign. Is the economic system sturdy? Effectively, sure, if we ignore authorities spending and low rates of interest doing a report quantity of assist.
It additionally implies that whereas this yr’s election marketing campaign will little question deal with the economic system, any such debate can be overwhelmingly colored by the state of Covid.
Greg Jericho writes on economics for Guardian Australia
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