8 big economist predictions for 2022 (and how they impact you)

Posted: 24 December 2021 10:00 am
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The RBA has repeatedly said it will not increase the cash rate before 2024, but could mortgages get more expensive sooner than that?

We spoke to a range of economists to get their opinion on what's likely to happen next, and here's what they told us.

Inflation to exceed 4% sooner than expected

Tony Makin Griffith University"Inflation is clearly on the rise worldwide, running at over 5% in the United States and over 3% here and in Europe, all above central bank target levels. Consumers are also expecting inflation next year of 4.4% according to the latest Melbourne Institute data. The RBA will therefore be forced to act sooner rather than later should inflation continue trending upward despite its commitment to hold rates down until 2024."

– Tony Makin, professor of economics, Griffith Asia Institute

RBA could introduce its own crypto

Picture not described"More people may invest in private cryptos if their prices continue to rise, but because Australia already has a well functioning and low cost payment system, existing crypto currencies are unlikely to be widely used for transactions. However, the RBA is likely at some point to introduce its own digital currency and it may well be based on the blockchain platforms that back or power some existing crypto currencies (like Ethereum)."

– Shane Oliver, chief economist, AMP Capital

COVID will disrupt the economy till 2023

Picture not described"We are not out of the woods yet. The danger of COVID uncertainty is still hanging over Australia and the global economy. It will be a bumpy ride next year. Even with more than 80% of the population fully vaccinated, there will be spikes in COVID cases in different parts of Australia, which will continue to cause transitory disruptions to the economy. It could extend till 2023 before the economy functions smoothly again in the 'new normal' environment."

– Mala Raghavan, senior lecturer in macroeconomics, Tasmanian School of Business and Economics

The "Great Resignation" isn't so great

Picture not described"I am sceptical that the phenomenon is as profound as it has been portrayed… Whatever its other flaws, JobKeeper and the other schemes in place during the more recent lockdowns did help to maintain linkages between employers and employees, so that employers know where to find workers as the economy re-opens and employees know they have jobs to go back to. That's not to say we don't have frictions in our labour market too: but they are largely due to the absence of migrants, not to any 'great resignation' on the part of Australian workers."

– Saul Eslake, economist and vice-chancellor's fellow at the University of Tasmania

Rates to rise in November 2022

Picture not described"While uncertainty reigns for now, the RBA has one eye on local data and the other on the US Federal Reserve. Taking the cash rate off 'emergency levels' in the absence of an emergency is a no-brainer, it's just down to timing. November 2022 is my pick."

– Annette Beacher, senior economist

Rates to rise in December 2022

david roberston economist"The economic recovery underway, together with rising inflation, will see pressure on the RBA to increase official interest rates by next December, although there is uncertainty around the new Omicron variant. Assuming vaccines and boosters are effective for Omicron, the recovery should continue and higher rates should be expected through financial year 22/23."

– David Robertson, head of economic and markets research, Bendigo Bank

Rates to rise early 2023

Picture not described"The RBA has made it clear that rates will be on hold until wage growth picks up materially. We don't think that could happen soon enough to justify a rate hike in 2022. But our view that wage growth will pick up more quickly than the RBA anticipates is why we expect a rate hike in early 2023, a year earlier than the RBA anticipates."

- Ben Udy, Australian and NZ economist, Capital Economics

In summary? The verdict about what's ahead is mixed

My favourite commentary of all was this reply, from Noel Whittaker, AKA "Australia's Financial Wizard of Oz":

"I think the timing of any rate rise is anybody's guess. But I think it will be sooner rather than later."

In other words, it's all a bit up in the air.

But don't despair – this isn't unusual. In fact, it's really common for economists and experts to have wildly different opinions about what's likely to happen next.

This is because their opinions are just that – opinions. They're based on unique experiences, insights and expertise, so they're informed opinions. They're often reliable. But they're not always right.

So where does that leave you? Well, if you have a mortgage (or you're planning to get one), there are a few things you can do with these insights.

Firstly, understand that the current low-rate mortgage climate is NOT going to stick around. Rates will start to inch up in the next year or two, so you need to make sure you can afford your mortgage both now and in the future.

To get on the front foot, you can:

  1. Start paying more now. Work out what your mortgage will be if interest rates increase by 0.25%, 0.5% or even 1% (use our mortgage calculator for quick estimates) and start making your repayments now as if that's how much your mortgage costs. This way you'll stress test your budget to make sure you can afford your mortgage if rates rise – and you'll make extra headway with your mortgage principal. (Note, this isn't a good idea if you have a fixed rate mortgage as you could get penalised for making extra payments.)
  2. Start saving money on your mortgage now. If you haven't reviewed your mortgage in at least 12 months, shop around to refinance for a better deal. I personally refinanced twice in the last 18 months, and I'm $16,000 better off for it. If you fix your rates you could lock in a low interest percentage now for the next 3-5 years, and you might be able to score a home loan cashback offer of up to $3,000 to sweeten the deal.
  3. Start saving up to prepare in advance. Start saving an extra $50 or $100 a week in a "future fund", so you have a buffer of savings to dip into when interest rates start to increase. This money is ideally not to be spent on holidays, dental work, medical appointments or any other bills or life expenses. It's set aside purely as "peace of mind" money, so you're not financially impacted when rates increase.

Get informed about your mortgage: Use Finder's home loan calculator to see how much your repayments will be if rates increase

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