As we enter 2022, Six Park’s Investment Advisory Committee (IAC) members share their thoughts on three key areas:
- Australia and its place in the world (Brian Watson AO);
- Bonds, inflation and interest rates (Mark Nicholson); and
- The view of global equities from the US (Lindsay Tanner).
Lindsay Tanner is a founding member of Six Park’s Investment Advisory Committee. He served as Australia’s Minister for Finance from 2007 to 2010, and as a Member of the House of Representatives from 1993 to 2010. He shares his thoughts about Australia and its place in the world as we enter 2022.
How is Australia’s economic recovery likely to play out?
“The Australian economy is likely to be affected by a number of unusual international distortions over the course of 2022.
“While in aggregate these distortions are unlikely to dramatically alter the wider investment outlook – as, to some extent, their positive and negative consequences will cancel each other out – they need to be carefully monitored.
“The continuing global economic recovery will underpin a period of rapid economic growth in Australia that is likely to last throughout 2022.
“The Australian rebound has already been stronger than anticipated, in part because of an incidental hothouse effect, exemplified by the fact we are running current account surpluses for the first time in our history.
“The disruptions flowing from the latest wave of Omicron infections may undermine the recovery for a short period, but are unlikely to have a sustained impact unless the pandemic situation worsens significantly.
“However, the factors driving this unusually benign economic interaction with the wider world are only beneficial in the short term.
Reduced immigration and supply chain disruptions likely to bite
“While border closures inhibit Australians from spending money overseas – and thus fuel domestic consumption and saving – they have also brought immigration to a virtual halt.
“The Australian economy depends on large-scale immigration to deliver growth rates well above Western European levels, and is already suffering shortages of skilled and unskilled labour because of the immigration pause. The Federal Government has announced a prospective resumption of immigration at levels comparable to the pre-pandemic period, and it is vital that this is delivered.
“It is likely that various supply chain disruptions will continue in 2022, including in areas yet to encounter problems, but these challenges should be manageable.
“There is a risk they will feed into heightened inflation, but Australia no longer has the labour market regulatory framework that in the past disseminated initial inflationary pressures throughout the entire economy, and hence it is unlikely we will see a sustained period of significantly higher inflation.
“However, inflation expectations amongst investors will need to be closely watched, as there are already signs of jitters in investment markets.
Are interest rates likely to rise?
“The Reserve Bank is likely to raise interest rates in 2022, possibly even before the forthcoming election, but it will be influenced by overseas rate movements and the value of the Australian dollar more than concerns about rising house prices, which are likely to plateau over 2022.
“The major central banks are all likely to begin winding back quantitative easing soon, and initial steps in this direction have already occurred. This may lead to short-term distortions in global investment flows, but these will probably be fairly limited and of little consequence to the Australian economy.
Australia-China stand-off settling down
“The wider geopolitical climate is an important backdrop to the recovery from the pandemic, and will probably deliver a few unpleasant surprises during the course of the year, but not to the extent that the economic recovery is seriously affected.
“There are some initial signs of US-China tensions relaxing slightly, and the current stand-off between Australia and China has settled into a low-level stalemate with plenty of grandstanding but not a great deal of major change in economic dynamics. While there is always a risk of these tensions deteriorating into undeclared or even outright conflict, this appears unlikely.
“The federal election due in May could be called as early as March if the economy is roaring back to life in early 2022, as governments usually enjoy a boost in their standing once people have enjoyed the holiday season.
“However, the disruption and uncertainty emanating from the Omicron outbreak have made a March election unlikely, as many voters will resent the fact that restrictions and upheaval have drifted into 2022.
“Investors and consumers usually defer decisions when the shadow of an election looms, but as there seems no reason to anticipate that a change of government would negatively affect current economic fundamentals; this effect will probably be relatively shallow in 2022.”
Learn more about Lindsay Tanner, his background and his personal passions in this video interview with Six Park’s Ha-Dieu Ford.
Read Brian Watson’s view of global equities from the US.
Read Mark Nicholson’s observations on inflation, interest rates and bonds.