The Australian economy is expected to grow by 3.6 per cent in 2022 despite the challenges of Omicron and a sharp slowdown in China, with the country looking "match fit" for fighting COVID and recovering within a "patchy" global growth environment that will favour nations whose populations are triple vaxxed.
This is the view of Deloitte Access Economics in its latest Business Outlook report, which projects faster economic growth of 5.2 per cent in NSW due to its reopening rebound, and 6.9 per cent growth for the Northern Territory due to commodity exports.
It is a forecast that has already baked in "a bunch of pain from Omicron", allowing for up to half the workforce spending an extra week being unable to work in the first half of this year.
Deloitte also predicts 5.2 per cent growth in business investment, a 6.4 per cent rise in household spending, an influx of 100,000 people returning to the labour force with the unemployment rate "flirting with 4 per cent" by the year's end.
"Business investment has finally crawled its way back to being above its pre-COVID levels," the report states.
"And the good news is that, despite this being the most forward looking component of spending in the national economy, it never dropped more than 5 per cent below where it was when the pandemic hit.
"In part that’s thanks to the specific incentives for investment that were rushed into place by the government (such as accelerated depreciation), and in part its thanks to the relative success of the wider Australian economy amid good health outcomes and a rapid and effective response from economic policy (notably including JobKeeper)."
Other factors highlighted include low interest rates and the strength of the sharemarket, which has made it relatively cheaper for listed companies to raise capital for financing expansion.
Tax breaks also played their part but the report's authors emphasise they do more to change the timing of investment spending than they do to add to it overall, meaning they'll leave a "rainshadow effect down the track".
"Then there’s China, where a sharp property sector slowdown has implications for the future plans of many businesses here in Australia, but particularly our mining and energy sector," the report states.
"Perhaps most importantly of all, there’s the fear of fear itself: we’ve got COVID by the tail, and it will continue to twist and turn.
"The resultant uncertainty – and the banner headlines that always accompany any potential bad news on the virus front – will continue to weigh on business decision makers as they decide the ‘when’ and the ‘what’ of any future expansion plans. Other things equal, that says there’s a pandemic ‘tax’ on investment expectations that may be slow to dissipate."
Overall business remains cautious however, with the authors noting business investment in NSW crashed with the latest lockdowns.
"And there’s no guarantee it will return as quickly as household spending has. Businesses need confidence to spend. And Omicron is highly uncertain," the report states.
"Overall, NSW faces a raft of challenges, yet its underlying fundamentals remain promising. For the meantime, all attention is on the latest wave of cases as Omicron takes its toll.
"In turn, hospitalisation numbers will be the best leading indicator for the state over the next few months, because they’ll tell the tale of whether NSW (and Australia more widely) can see off Omicron’s challenges without heading back into long and lengthy lockdowns."
The forecasts put forward by Deloitte Access Economics are based on the assumption there are no lengthy or large-scale lockdowns, that COVID treatments continue to improve with growing supply, and that migrant, student and tourist numbers rise throughout the course of 2022 and get closer to pre-pandemic rates by 2023 or 2024.
"The tug-of-war between vaccinations and mutations continues, with new strains raising risks, with signs global recovery is topping out, and with a lack of vaccinations among poor nations compounding risks. So progress against COVID – or the lack of it – remains central to the global economy, and it will for a while," Deloitte explains.
"Yet vaccinations and other treatments are still the likely winners, aided by the fact that families and businesses are getting better at living with COVID. That will leave global growth patchy in 2022, with the greatest success likely to go to those nations whose populations are triple vaxxed.
"Australia is now much more match fit for fighting COVID: we’re well vaccinated, we’ve got the hang of juggling lockdowns and other COVID challenges, and we’re cashed up with dollars left over from when the pandemic meant that money couldn’t be readily spent. That combination spells resilience and recovery."
The group's position is that the good outweighs the bad, and it has been that way for a while.
"For all its challenges, 2021 recorded the fastest growth in the Australian economy since 2007, making it the second fastest growth seen in the past two decades," the report states.
"Deloitte Access Economics sees 2022 as a similar story, with Australia’s growth remaining above average as pandemic damage to the economy continues to be repaired. Yet risks remain high: COVID isn’t done with us."
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