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Wage increases, more jobs are coming but so is an interest rate hike

Business

ANZ has tipped even stronger economic growth, an increase in wages and full employment, but the downside will be an increase in interest rates earlier than expected.

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The bank said economic growth this year would reach 5 per cent, a significant increase on previous forecasts of 4.2 per cent.

“The unemployment rate is expected to drop sharply to 4.8 per cent by the fourth quarter this year, then fall more gradually to 4.4 per cent by end-2022 and 4.2 per cent by end-2023,’’ the bank said this morning.

The current unemployment rate is 5.5 per cent and the lowest recorded rate was 4.1 per cent in 2008.

“The tighter labour market will drive wages growth and ultimately inflation higher. We expect annual growth in the wage price index to accelerate to 3 per cent in the second half of 2022, and hold a little above 3 per cent through 2023 even as the opening of borders boosts the supply of labour.” ANZ said.

“The stronger wages growth forecast underpins our expectation that trimmed mean inflation will return to the RBA’s 2 to 3 per cent target band by late-2022 and reach the mid-point of the target band by the end of 2023.’’

ANZ said it was possible that the conditions for rate hikes arrived even earlier than the second half of 2023 if the recent trend of rapid improvement in the economy continues, but there is also the prospect that the recovery is knocked off-track by COVID and rates hikes are delayed.

The Commonwealth Bank also said Australian businesses were continuing to invest with financing for equipment and machinery was up 21 per cent in May, compared with the same time last year.

CBA’s executive general manager of business lending Clare Morgan said asset financing across a number of sectors within CBA’s Business Bank continue to surge as businesses restock and invest in new assets.

“The construction industry, in particular, has benefited from multiple government stimulus packages, including record investments in public infrastructure projects and the Homebuilder grant,’’ Morgan said.

“We’re also seeing strong demand for vehicle financing and machinery, particularly in the food manufacturing and agriculture sectors. In fact, demand for agriculture machinery is the highest we’ve seen in several years.”

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