But worker shortages could be a major obstacle by 2023, with the bank’s analysts expecting unemployment to drop to 3.8 per cent.
The report revealed the Q3 national accounts showed a smaller hit to activity than expected but analysts expect a strong snap back in activity in Q4 with GDP rising 2 per cent, which would see the pre-Delta level of GDP recovered in early 2022.
Growth is expected to continue through 2022 to 4.1 per cent and rising slowly again in 2023 to 2.5 per cent.
More than 330,000 jobs lost due to shutdowns in mid-2021 will most likely be recovered, according to NAB analysts, with the unemployment rate to drop to 4.1 per cent by December 2022, and down to 3.8 per cent in 2023.
Household consumption is driving the economic upswing as well as the ongoing effects of policy support – both dwelling and business investment are expected to continue to lift.
As states open up and ease their border restrictions, the NAB report said the balance between services and goods spending should normalise, and the impact of stimulus will wane. It is at this point that underlying population and productivity growth will become important drivers of growth.
The report suggested that the Reserve Bank of Australia will most likely start to lift interest rates in mid-2023 on the back of a strong rebound in the labour market, deteriorating liquidity in the bond market and the pullback in stimulus by overseas central banks.
“While we are optimistic (as is the RBA) on growth over the next year or so, a number of uncertainties remain, including the risk from the Omicron variant,” group chief economist Alan Oster said.
“The tightening in the labour market should lead to a pickup in wage growth and eventually inflation. However, the speed and magnitude of this is a key unknown. The wage setting process is based around long term contracts and dependent on inflation expectations.
“The level of “full-employment” is highly uncertain as is the sensitivity of wages to labour demand. Further, the ability of businesses to pass on cost pressures and maintain margins will be important. Against this, strong demand and labour shortages may shift the dial in the other direction – at least in the short-term.”