I see the recovery starting a bit earlier. That takes the absolute top off that rapid growth next year. We still have what is an extraordinarily good year for the full year of 4.7% for 2022. GDP growth should be probably 3.5% for 2023. Normal growth rate in the Australian economy now is about 2.7%. We have a very, very strong recovery for the next four quarters leading to a stronger than average recovery in 2023.
I did a podcast called Misunderstanding Monetary Policy, which I should have expected was much misunderstood. This was really about questions that I'd got about monetary policy. I was asked in a poll what I thought would be the next move for the RBA. I said "well, what I confidently expect: In the first quarter of next year the RBA will announce a further tapering of quantitative easing. The RBA previously reduced their purchases of bonds to four billion a week. I confidently expect that in the February they'll cut that down to three billion a week. I think that the quarter after that they'll cut it down to two billion a week and I think in the September quarter they'll cut it down to one billion a week. I think by the time we get to the end of next year quantitative easing will be a thing of the past."
Immediately I said this I got a response back "No, no, no, no! I was asking about putting rates up." and I said "Well, you actually have to come to an end of quantitative easing, you know. Where we are, we've got interest rates at the zero bound and you have to come to the end of quantitative easing before you can put up rates". In short, I think quantitative easing will have come to an end by the end of next year.
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I think that unemployment will be down to a level in the low 4% by the end of 2022. That's certainly enough to allow the beginning of increases in wages relative to inflation, an improvement in living standards. Now I think that unemployment will continue to fall over 2023 and we'll get down to unemployment numbers with a three in front of them. That will generate quite strong growth in real incomes by the time we get to 2023.
The RBA will have to wind down quantitative easing in 2022 before it can begin to increase the cash rate in 2023. This steady approach will allow Australian living standards to rise in the period ahead.
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