Economic Update December 2021
Going for Goldilocks
Most advanced economies have seen peak growth and policymakers now have the unenviable task of guiding the transition to a new normal, focusing on fixing supply-demand imbalances and helping both inflation and unemployment to fall. There is little room for error. Asset markets will need to cope with both the implications of policy normalisation and slowing growth rates that will weigh on returns. Uncertainty remains elevated, not least because of the appearance of the Omicron variant that presents considerable downside risks to the outlook.
Equity markets have priced in much of the good news on economic recoveries so while they will remain favoured by investors, returns will be challenged in 2022 by the impact of slowing growth rates, already elevated inflation, and inevitable monetary policymaker action to gradually wind back pandemic-induced emergency settings.
In Australia, the relatively aggressive public health approach to the health crisis through the second half of 2021 saw it fall behind many advanced economies in terms of recovery, but price pressures have been more moderate than other advanced economies. Although markets believe that rates could begin rising in mid to late 2022, this is significantly earlier than the RBA’s initial forward guidance of 2024 at the earliest.
About the author
Alex Joiner, PhD
Joined in 2016
Alex Joiner is Chief Economist at IFM Investors. He is responsible for the firm’s economic, financial market and geopolitical risk analysis that is key in IFM’s investment process. In this capacity he engages with IFM’s domestic and global clients on macro-investment trends and themes. He is a frequent commentator on economic and markets via traditional and social media and regularly speaks at public forums and conferences. He has over two decades of professional experience in economic and markets and prior to joining IFM was the Chief Economist at Bank of America Merrill Lynch (Australian & New Zealand) after being a senior economist at ANZ Bank. He holds a First Class honours degree in Economics and a PhD in Econometrics from Monash University. Alex is also committee member of the Australian Business Economists.
About the author
Frans van den Bogaerde, CFA
Joined in 2019
Frans supports the Chief Economist with the firm’s economic, financial market, and policy analysis and forecasting. He holds a Bachelor of Commerce (Finance & Economics) with Honours in Finance (First Class) from the University of Melbourne. Prior to joining IFM Investors Frans was undertaking his Honours degree and was a researcher with the Brain Mind and Markets Lab at the University of Melbourne.