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Economics | November 24, 2021
The Big Issues of 2022
The Big Issues of 2022
For the past 20 years we have produced “The Big Issues” report – a report that has sought to highlight the
issues that are expected to influence the economy and financial markets over the forthcoming 12 months.
This is not a crystal ball gazing exercise. The aim is not just to forecast where certain economic variables are
likely to be in a year’s time. Rather the focus has been to highlight trends, issues and ‘big picture’ influences
that act as threats or opportunities for consumers, investors and businesses alike.
The aim has been to produce an informative document that is jargon-free. The intention over time has been
to produce a commentary that causes people to think and ask the ‘so what’ question – that is, to determine
what this means for their own circumstances. If one or a number of the Big Issues were to prevail over
2022, what would this mean for you or your customers/clients?
We undertake this analysis by balancing the text with a healthy spattering of graphs and pictures to best
highlight the issues we think will prove important in 2022.
This year we have our usual Big Issues list. But we again provide a list of Talking Points: topics that may
not have the same influence on financial markets but are likely to form part of economic discussion over
2022.
You may not agree with all of our choices of Big Issues for 2022. But hopefully the discussion prompts you
to come up with your own list of things you will be watching closely over the coming year.
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Economic Insights. The Big Issues of 2022
But First…
The Economic ‘State of Play’
Review of the Past Year
In addition to our ‘Big Picture’
analysis of key economic issues, we
feature a recap of the past year’s
economic performance together
with an outlook for the economy for
the coming twelve months.
This economic assessment largely
sets the scene for the discussion of the Big Issues. Because there are themes and trends that have evolved
over the past year that affected economic performance. A valuable starting point is to establish whether the
same factors or indeed new factors are likely to dominate in the coming year.
The economic forecast table opposite is exactly the same table used last year to assess the outlook for
2021. And what it shows is how difficult the year was to forecast. At one point it almost looked like
Australia was on track to become ‘Covid free’. And then came Delta and the economy changed again.
In the March quarter the economy grew by 1.9 per cent and it followed this up with a 0.7 per cent lift in the
June quarter. Then along came the Delta virus strain, sidelining the NSW, Victoria and ACT economies.
The Australian economy may have contracted as much as 4.3 per cent in the September quarter before
rebounding in the current December quarter by around 4 per cent.
The cash rate currently stands at 0.1 per cent; Aussie dollar is near US73 cents; unemployment stands at
5.2 per cent; annual underlying inflation is 2.1 per cent; and the ASX 200 index is near 7,400 points.
The Year Ahead
As we approach the end of the 2021 calendar year, it
is clear that Covid-19 still dominates the landscape.
The bad news is that major economies including
China are still dealing with virus outbreaks and that
has led to localised mobility restrictions.
The good news is that vaccination rates continue to
lift, allowing economies to reopen and permitting
more ‘normal’ conditions to return.
The economic outlook will clearly be dictated by
Covid-19. This includes the potential for fresh virus
outbreaks; the potential for new variants to appear; continued application of social hygiene measures; viral
treatments (such as a pill); and changes to mobility and vaccination rates.
After expanding by an estimated 6.5 per cent in 2021, Commonwealth Bank Group economists expect the
global economy to grow by 4.4 per cent in 2022. On the same basis, the Australian economy is tipped to
grow by 4.4 per cent in 2022 after expanding by 3.5 per cent in calendar 2020.
Underlying inflation is expected to broadly hold near 2.25-2.50 per cent over 2022.
Before lifting rates the Reserve Bank (RBA) wants underlying inflation to be sustainably between 2-3 per
cent; wants to see the jobless rate fall to 4 per cent; and wants to see annual wage growth lift to around 3
per cent in response to a tighter job market. The RBA doesn’t expect these conditions to be realised until
2024, or late 2023 at the earliest.
Commonwealth Bank Group economists believe that these pre-conditions may be met earlier – in fact
‘normalisation’ of rates is expected to begin in November 2022.
November 24, 2021 | 2
Economic Insights. The Big Issues of 2022
Living with Covid-19
Reports of an outbreak of a new virus (Covid-19) started to appear in early January 2020. World
consciousness of the virus increased from around January 20. On January 30 the World Health
Organisation declared the novel coronavirus a global health emergency.
From the first case identified in late January, case numbers hit a then peak in China at 58,016 on February
17 before declining. Global case numbers also eased to March 7 before then accelerating higher again.
In response to the medical threat, Governments across the globe locked down their borders and economies.
But there were varied degrees of stringency, and as a result the relative success in suppressing the virus
also varied.
The aim of the lockdowns was to prevent hospital systems from being overrun and curtailing the death rate.
With economies in lockdown, Governments and central banks had to respond by providing unpredented
emergency support and stimulus measures. So there has been an enormous economic cost to add to the
social cost.
The statistical website “Our world in data” estimate that there have been 250 million cases of Covid-19
since inception with 5.06 million deaths. The global economy contacted around 3.5 per cent in 2020 – the
worst economic downturn since World War II – or in peacetime, the worst downturn since the great
depression of the late 1920s/early 1930s.
While the social and economic costs have been almost unprecedented, similarly unprecedented has been
the global response in developing and administering vaccines. Around 11 months after the virus emerged,
vaccines started to be administered across general populations.
It has been estimated that 51.1 per cent of the world population has received at least one dose of a Covid-
19 vaccine. Just over 7.3 billion doses have been administered globally, and 27.36 million are now
administered each day.
During October 2020, the fast-spreading Delta variant emerged and it was recorded as a variant of
concern in May 2021. Just as countries thought that they could erradicate the virus, they were forced to
change to a strategy of suppression/vaccination.
Now countries across the globe have similar aims – to vaccinate as many people as possible, as quickly as
possible, so that some form of social and economic ‘normality’ can be restored.
Covid-19 will likely continue to exist for some time, but now it is a case of living with the virus. And that
includes all aspects of people’s daily lives – work and leisure – and all aspects of economies across the
globe.
November 24, 2021 | 3
Economic Insights. The Big Issues of 2022
Winding back stimulus
When you are staring into the abyss – as much of the
world was back in early 2020 with the onset of Covid-19
– it is an easy matter for Governments to spend money.
To prevent the spread of the virus businesses were forced
to close and people were forced into lockdown. And they
required economic support to get through the crisis.
In Australia a raft of measures were introduced to
support and stimulate the economy including the
JobKeeper wage subsidy program, extension of business
asset write-off provisions, allowing people to access their
superannuation and rental and mortgage ‘holidays’.
From a broadly balanced position in late 2019, the
Federal Budget deficit rose sharply over 2020, reaching
a record $204 billion in the year to February 2021. State
and territory budgets were similarly hit by the need to
implement Covid-19 support measures.
At the same time, the Reserve Bank introduced
unprecedented support measures such as a 0.1 per cent
3-year bond yield target and a program of government
bond purchases.
The support and stimulus measures were extraordinarily
successful, especially measures to keep people in work.
The jobless rate rose from 5.1 per cent in February 2020
to a peak of 7.4 per cent in July 2020 and currently sits at 5.2 per cent.
The process of removing the ‘temporary’ support measures has been underway for some time. JobKeeper
ended on March 28, with final payments processed in April. There was some hope at the time that this
would be the end of job subsidies. But the lockdowns that were required in response to the Delta variant led
to fresh support measures being provided. The Reserve Bank has also scrapped the 3-year yield curve
target and has begun tapering bond purchases.
The need for flexibility with support and stimulus measures has been amply demonstrated since early 2020.
And there will be constant consideration in the year ahead about retaining, revising and removing the fiscal
and monetary measures. If measures are kept in place too long then businesses and workers become
dependent on them and there is a cost to budgets. But remove measures too quickly and the economy
could face the risk of stalling.
November 24, 2021 | 4
Economic Insights. The Big Issues of 2022
“Regional renaissance”
Regional Australia has enjoyed a renaissance during the pandemic, benefitting from significant societal and
economic changes. Flexible working-from-home (‘WFH’) arrangements have encouraged increased regional
migration as city dwellers opt for a ‘sea and tree’ lifestyle change. At the same time, economic conditions in
regional Australia have improved following devastating droughts and bushfires, encouraging a “stayer
effect”. According to the latest Commonwealth Bank (CBA)-Regional Australia Institute (RAI) Regional
Movers Index, net regional migration is up 14 per cent over the year to September.
Regional migration has been supported by greater worker mobility and fewer virus social distancing
restrictions. In this environment, regional labour markets have been more resilient during the pandemic than
metropolitan areas. In fact, the average unemployment rates for the regions are amongst the lowest in the
country. Labour demand has been particularly strong in regional areas with the National Skills Commission
reporting record job vacancies of 74,300 in October 2021.
Regional property markets have outperformed their city counterparts during the pandemic due to WFH
flexibility, strong population growth and record low interest rates. According to CoreLogic, regional home
prices advanced 24.3 per cent over the year to October 2021 – the strongest annual growth rate in 17½
years.
A record 4.7 million city dwellers are expected to head to regional holiday destinations this summer, up 12
per cent on a year ago, according to the latest SCA iQ Summer Study. Spending on accommodation and
restaurants could surge.
Despite the recent setback from Delta virus outbreaks, Australia’s pandemic economic recovery has been
underpinned by the agricultural sector. The farm economy, as measured by GDP, soared by 48.3 per cent
over the year to June 2021 (latest reading) - the fastest growth rate in 17 years - to a record high of over
$11.7 billion.
Rural exports are also near record high levels, up a massive 68.5 per cent over the year to September 2021,
despite Chinese tariffs and import duties on an array of agricultural-related goods. Strong prices for grain,
and good growing conditions, have driven another near-
record winter crop-planting program across the country, with
early estimates for a second-straight year of bumper
tonnages of wheat, barley and canola when harvested at the
end of the year.
Commodity prices in the beef and lamb sectors are also
supporting producer confidence, with low supply and high
demand for protein pushing prices to levels not seen before.
And dairy confidence is strong on the back of favourable milk
price contracts and improved water allocations. But labour
shortages have been causing some headaches for farmers
and the issue will remain in focus in 2022.
The farm sector has been at the forefront of a pick-up in
business investment. Fast-rising rural property values,
record low interest rates and the federal government's
instant asset depreciation write-offs have all fuelled a farm
sector-buying spree of plant and equipment. Healthier
landholder debt to equity ratios, courtesy of higher land
valuations, are giving farmers the confidence to start
borrowing and buying again. A key focus for 2022 will be
increased investment in Australia’s world class ‘AgTech’
sector, which could create jobs and new export
opportunities for regional Australia.
November 24, 2021 | 5
Economic Insights. The Big Issues of 2022
China: Mao, Deng, Xi and ‘Common prosperity’
Chinese President Xi Jinping stamped his authority over the Chinese Communist Party in 2021. In
November, the party passed an “historical resolution” at its summit, highlighting its achievements under Xi’s
leadership. Just two other leaders have been elevated into that rare pantheon – party heavyweights Mao
Zedong and Deng Xiaoping.
The “Leader for Life” has had a lot on his plate recently, contending with persistent Delta virus outbreaks
through a “zero-Covid” lockdown strategy that has shut down ports and disrupted factories. Supply chain
frictions have also been exacerbated by frequent power outages amid an energy crisis, pushing up
petroleum, gas and coal prices.
In the Chinese property market the Chinese government has struggled to contain a huge debt build-up.
Property developers, including China Evergrande Group, have been starved of cash since authorities last
year unveiled the ‘three red lines’ - a key policy plank of President Xi that imposes limits on liabilities-to-
assets, net debt-to-equity, and cash-to-short term borrowing ratios. The liquidity squeeze has resulted in
offshore defaults, credit rating downgrades and sell-offs in developer shares and bonds.
At the centre of the recent economic tumult has been President Xi’s ambitious ‘common prosperity’
initiative, which has seen a regulatory blitz focused on a tightening of measures across the technology,
property and education sectors. A fundamental shift in policy mindset from a focus on economic growth to
social equity could usher in broad changes in taxation, social security, income transfers and other areas
aimed at narrowing China’s rising income inequality.
Another key aspect to Xi’s plan involves strengthening Chinese nationalism, seen most clearly by China’s
moves to press its claims on Taiwan, a self-governed democracy.
Political tensions between Beijing and Canberra, with the imposition of Chinese import tariffs and duties on
Aussie exports, have failed to slow shipments to Australia’s
largest trading partner. But businesses will be hoping for
détente between the two powers in 2022. China’s property
crisis and a clampdown on pollution in the steel industry
ahead of the Beijing Winter Olympics are other issues to
watch, especially from the vantage point of Australia’s iron
ore and energy sectors.
The twice-a-decade Communist Party Congress will be held
in the second half of 2022, with an increasing focus on “new
or green infrastructure.” China continues to pivot its economy
away from a dependence on traditional sources of growth,
including fixed asset investment, towards consumer spending
and the decarbonisation of future industries.
Commonwealth Bank (CBA) Group economists expect the
Chinese economy, as measured by GDP, to expand by 8.1 per
cent in 2021, before slowing to an annual pace of 5.3 per
cent in 2022.
We think that the authorities are unlikely to unleash
significant fiscal stimulus with much of the structural
tightening here to stay. Exports are likely to grow in 2022,
but only a gradual recovery in consumer spending is expected
due to a continuing “zero-Covid” tolerance.
November 24, 2021 | 6
Economic Insights. The Big Issues of 2022
Climate change
Climate change has featured in our Big Issues report over the past decade. The issue has been represented
in various guises such as carbon trading and the cost and prevalence of natural disasters. And we would
expect that Climate change will regularly feature on the Big Issues lists for some time to come. It is an issue
with both immediate and longer-term effects and consequences, with the consequences becoming more
pronounced the longer there is lack of short-term action.
At a global level the focus is now on the annual United Nations Climate Change Conference (Conference of
the Parties or COP). At time of writing the Glasgow Conference (COP26) had just ended. The next iteration,
or COP 27, will be held in Sharm El-Sheikh, Egypt from November 7-18, 2022. The COP28 conference is
slated for the United Arab Emirates in November 2023.
The agreed decisions frpm COP26 can be found here: https://unfccc.int/process-and-
meetings/conferences/glasgow-climate-change-conference-october-november-2021/outcomes-of-the-
glasgow-climate-change-conference
It is actually not easy to find this statement. You have to wade through a mountain of documents. And that
is a criticism on the bureaucracy that has developed around climate change issues.
The good news about COP 26 is that it ran into ‘overtime’ and that an agreement was struck by the 197
countries that attended. The bad news was that the agreement disappointed a raft of governments,
businesses and individuals that had hoped for more rigorous and urgent action.
For the first time the COP agreement calls for the phase down of the use of unabated coal for power.
(“…accelerating efforts towards the phase-out of unabated coal power and inefficient fossil fuel subsidies,
recognizing the need for support towards a just transition.”)
There was also a commitment by 130 countries to end deforestation by 2030. The agreement also calls on
countries to detail new pledges (or more ambitious strategies) at the 2022 COP27 to address climate
change rather than in five years’ time.
The goal to limit global warming to 1.5 degrees Celsius remains but it will require more action from
countries to achieve the target.
There was disappointment that countries
didn’t go far enough with commitments to
address climate change. But on a daily and
monthly basis, the focus will be on the
strategies and plans proposed by companies
– especially big multi-national companies –
to deal with climate issues and broader global
goals.
The Federal Government’s climate change
strategy was agreed by the Coalition parties
ahead of COP26. The report “Australia’s
Long-Term Emissions Reduction Plan” can be
found here:
https://www.industry.gov.au/data-and-
publications/australias-long-term-emissions-
reduction-plan
The report as well as the responses by the
Labor Party and The Greens will dominate
discussion as the 2022 Federal Election
draws closer.
November 24, 2021 | 7
Economic Insights. The Big Issues of 2022
Jobless rate: How low will it go?
Apart from inflation, another regular on our Big Issues
reports over the years has been the job market. Last
year the issue was just presented as Jobs while in 2019
the issue was represented as Full Employment.
It’s important to get some perspective on how the job
market has performed in recent times – before and
during the Covid crisis. In February 2020 – just before
Covid-19 started to impact the economy – the jobless
rate stood at 5.2 per cent. That rate was considered
high by the Reserve Bank. Remember back in May
2019 the Reserve Bank Governor delivered a seminal
speech saying “the Australian economy can support an
unemployment rate of below 5 per cent without raising
inflation concerns.” Rates were cut in June, July and
October 2019. But despite the easier policy stance the
jobless rate had seemingly stalled at 5.0-5.3 per cent
over the 18 months to February 2020.
Supported by JobKeeper and a raft of Reserve Bank
measures to ease monetary policy, the jobless rate “only”
rose as high as 7.4 per cent in July 2020. While this was
a 22-year high, it was well below some forecasts
(including Federal Treasury) of 10-15 per cent. And just
over a year later the jobless rate hit a 13-year low of 4.5
per cent.
As noted, JobKeeper was one of the factors that
prevented the headline jobless rate hitting Depression-
era highs. And other stimulus and support factors have
also driven the economy ahead, keeping the jobless rate
low.
But another factor to throw into the mix is the closure of
foreign borders. Businesses have had no alternative but
to hire domestic labour, whether or not skill sets have
matched requirements or not. This situation has become
more problematic for some businesses, especially in
hospitality, construction and rural industries. Annual
wage growth hit 7-8 year highs for a number of
industries in the September quarter 2021.
The question is what happens when foreign borders are fully open. Will the jobless rate stall again near 5
per cent? Or will the on-going economic stimulus continue to drive the jobless rate toward 4 per cent?
The Reserve Bank hasn’t defined a ‘full employment’ level although it is assumed to be near 4 per cent.
What the Governor has said is “Our focus has been on returning inflation sustainably to the 2 to 3 per cent
range and doing what we reasonably can to reach full employment. These are our goals and it is progress on
these fronts that will continue to determine decisions about the cash rate.”
And that’s why the job market will remain one of the key issues of 2022.
November 24, 2021 | 8
Economic Insights. The Big Issues of 2022
Inflation: Just how transitory?
Inflation has featured regularly on the Big Issues list. But its inclusion hasn’t always been to discuss high
rates of inflation. In fact in 2018 the issue was described as: How long will inflation stay low? And in 2017
the issue was written as: “Inflation at an inflexion point?”
Understandably, last year we just included Inflation on our list of ‘talking points’. Clearly we thought there
would be more pressing issues to discuss.
But arguably inflation has indeed been a Big Issue rather than a talking point - especially over the past few
months. And that’s because economies have reopened more quickly than most people generally thought
was possible a year ago. And linking it back further, that’s because vaccines (not one, but many) against the
Covid-19 virus have been developed and produced in super-quick time.
Economies have opened up and people have resumed their more ‘normal’ spending behaviours. The
problem is that for many months producers either couldn’t or wouldn’t produce goods in the same
quantities. So now we have stronger demand by consumers, producers that are struggling to supply the
goods, and trains, planes and trucks that can’t get the goods to consumers quick enough.
So we are hearing the term ‘supply chain’ more than we have heard – or wanted to hear – before. It’s not
just one product, and it’s happening across supply chains from raw materials to finished goods to
distribution and transport. And with demand racing ahead of supply, prices are rising.
Central banks largely believe that this is a ‘transitory’ or ‘temporary’ phenomenon. And that makes sense,
more people are back at work and supply should adjust to the higher demand. So central banks are inclined
not to rush ahead with higher interest rates to quell the demand, believing that markets will work it out.
But what if they don’t? What happens if inflation remains at historically-high levels? Inflationary
expectations may become entrenched at higher levels, making it harder for central banks to set policy.
November 24, 2021 | 9
Economic Insights. The Big Issues of 2022
Migration
There are a number of Big Issues that make a return in 2022 and Migration is one of them. And the reasons
are multi-faceted.
First, is the differing strategies that are currently being applied by federal, state and territory governments.
Some governments such as NSW and Victoria are wanting faster re-engagement with the rest of the world
– the ‘Living with Covid’ strategy. But other governments such as Western Australia are opting for more
conservative strategies on the opening of domestic and foreign borders.
The key question is what happens if there is an escalation of Delta cases or emergence of new virus
variants. The risk is that a multi-speed Australia emerges, leading to greater uncertainty for domestic and
overseas travellers alike. And this uncertainty could prove damaging to our in-bound tourism sector.
Second, with foreign borders closed, this has caused labour shortages to develop, especially in construction
and hospitality. For Aussie job seekers, there has probably never been a better time to find work with skilled
job vacancies at 13-year highs.
But what if job seekers don’t have the desire or skill-set to fill the available positions. How long does the
federal government give domestic job seekers before it more aggressively opens the borders to
backpackers, tourists and foreign job seekers more broadly?
There is likely to be significant discussion on migrant intake targets and strategies. This involves more than
setting a ceiling on migrants, but how stringent policy needs to be in targeting industries and directing
workers to regional areas in preference to cities.
Third, there are potential issues for monetary policy. Smaller intake targets will mean job markets remain
tight, potentially driving down jobless rates and putting upward pressure on wages. The problem is that
ongoing labour shortages may exacerbate price pressures and inhibit efficient operation of certain sectors.
November 24, 2021 | 10Economic Insights. The Big Issues of 2022
Rewind: The Big Issues for 2021
As we noted at the start of this report, we have been
producing the Big Issues report annually for the past 20
years. It is interesting – and perhaps even instructive – to
rewind over the past year and assess what we had on the
radar in December 2020.
Looking ahead into 2021, we highlighted eight issues. And
it almost goes without saying that the first issue was
“COVID-19”.
We noted “There is probably not one aspect of our lives that
has not been touched by coronavirus. And many of the
effects will be long-lasting such as the way we work, study,
interact, travel and shop.” And that is probably an
appropriate segue to the “Living with Covid” Big Issue for
2022.
The second issue in 2021 was “The Biden Era” but it is
probably fair to say that the issue failed to live up expectations. In short, there haven’t been dramatic
changes. Encouragingly, the US economy has kept firing and 2021 is ending with the Federal Reserve
starting to wind back monetary stimulus.
Number three on the Big Issues list for 2021 was: “Monetary policy”. Central banks across the globe have
done what it takes to support their economies operate through the crisis. Indeed the last few months have
been focussed on exit policies, especially with economies in reasonable shape and supply chain issues
leading to an uplift in inflation rates. One regret is that we nominated Inflation as a ‘talking point’ rather
than a Big Issue in its own right.
The fourth issue nominated for 2021 was China. This issue has made the list in different forms for the past
six years. In fact in 2020 the issue appeared under the title of the “The road ahead for the Chinese
economy”. Last year we wrote: “Apart from goods trade, issues of contention between China and industrial
powers include intellectual property rights, Taiwan, territorial claims in the South China Sea, Hong Kong and
calls for an inquiry into COVID-19. It is the latter that has led to frictions with Australia and it will be a key
focal area in 2021.”
“Climate change” was the fifth issue on the list for 2021. The issue was never too far away from the centre
of attention but the main interest – especially globally – was in the recent United Nations Climate Change
Conference (COP 26).
Sixth on the 2021 Big Issues list was “Jobs”. We noted: “The development of a vaccine(s) raises the
prospect of a faster-than-expected economic recovery. And that raises the prospect of the jobless rate
returning to 5 per cent quicker than expected.”
The seventh Big Issue for 2021 was “Economic Inequality”. The main focus of our attention was Covid-19.
“Migration” rounded out the list of Big Issues for 2021. It was a key issue for a number of sectors in 2021
and it again appears on our Big Issues list for 2022, especially for hospitality, construction and agriculture.
Craig James, Chief Economist, CommSec
Twitter: @CommSec
Ryan Felsman, Senior Economist, CommSec
Twitter: @CommSec
November 24, 2021 | 11You can also read
