The start of 2022 won’t be dazzling, but there’s light on the horizon.
So as we start 2022, the key thing hanging over markets is the ‘shadow lockdown’.
This is the idea that even though there’s no official lockdown in place, people are acting as if there was.
They’re bunkered down, furloughed from work, and not spending.
Take Westpac’s spending tracker. That got a bit of a bump going into Christmas, but has fallen sharply with the Omicron outbreak.
Interestingly, even WA has been pulled into the spending shadows as well:
Their case numbers remain low, but they’ll be watching the carnage playing out in the east with a lot of fear and concern.
We’ve now had a total of 1.5m cases in Australia. 1.3m of those have been in the last two weeks alone.
This is all going to create a very tough and bumpy ride for businesses over the next couple of months.
CreditorWatch found business-to-business spending hit its lowest levels on record in December;
December 2021 average trade receivables fell 45% below 2020 turnover levels
“It really is quite bad – Santa did not show up for businesses this Christmas,” said CreditorWatch data analyst James O’Donnell;
Banks are now telling their business customers to “hold on for a few weeks.”
Thanks banks. That’s helpful advice.
But it is probably right. As long as the wheels of the hospital system don’t come off, customer spending should come bouncing back.
While ANZ is reporting that spending is down…
… consumer confidence is holding up, which should deliver a strong bounce back in spending once the Covid situation improves.
And consumers are still looking at one of the best labour markets in decades. Job advertisements remain at record highs…
… and a shortage of workers (compounded by Omicron), should see wages growth accelerate into 2022.
So from a consumer’s perspective, as long as your healthy, this is about as good as conditions get.
And that’s probably a good metaphor for the overall economy.
Looking through the short-term impacts of a shadow lockdown, the economy still looks pretty good.
So look, it’s a bumpy road for now.
But it should pass quickly. And underneath it all, the economy is strong, consumers are flush and confident, and economic activity should bounce back quickly.
So that’d be my expectation. 2022 should be a strong year economically, despite a bumpy start to it all.
We’ll be out of the shadows in no time.