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Australia & New Zealand

Australia & New Zealand Economics Weekly

More 50bp hikes coming

We agree with RBA governor Phillip Lowe that market pricing for the Cash rate looks too aggressive. But we also think the consensus is still too dovish. After all, Governor Lowe is starting to grow concerned that wage growth will be too strong to allow the Bank to meet its target. And the RBA is still lagging behind a number of its peers in its hiking cycle. We therefore expect the RBA to hike rates to a peak of 3.1%, higher than the analyst consensus of a peak of 2.60%.

24 June 2022

Australia & New Zealand Economics Weekly

Inflationary pressures keep building

The big minimum wage hike announced by the fair work commission this week will lead to higher wage growth over the coming year. Given the tightness in the labour market and rising cost pressures, businesses will be forced to pass that rise onto consumers. That suggests the risks to our forecast that inflation will peak just above 7% in Q3, are tilted to the upside. World with Higher Rates - Drop-In (21st June, 10:00 ET/15:00 BST): Does monetary policy tightening automatically mean recession? Are EMs vulnerable? How will financial market returns be affected? Join our special 20-minute briefing to find out what higher rates mean for macro and markets. Register now  

17 June 2022

Australia & New Zealand Data Response

Australia Labour Market (May 2022)

The strong rise in employment in May will keep pressure on the RBA to continue its aggressive hiking cycle in the months ahead. World with Higher Rates - Drop-In (21st June, 10:00 ET/15:00 BST): Does monetary policy tightening automatically mean recession? Are EMs vulnerable? How will financial market returns be affected? Join our special 20-minute briefing to find out what higher rates mean for macro and markets. Register now  

16 June 2022

Key Forecasts

Main Economic & Market Forecasts

%q/q(%y/y) unless stated

Q4 2021

Q1 2022

Q2 2022

Q3 2022

Q4 2022

Q1 2023

2022

2023

2024

Australia

GDP

3.6(4.4)

0.8(3.3)

1.6(4.2)

1.3(7.5)

0.6(4.3)

0.2(3.7)

(4.8)

(2.2)

(1.5)

CPI Inflation (NSA)

(3.5)

(5.1)

(6.0)

(7.1)

(6.6)

(5.6)

(6.2)

(4.2)

(2.5)

Core CPI Inflation1 (NSA)

(2.7)

(4.0)

(5.2)

(5.8)

(5.6)

(4.9)

(5.1)

(4.0)

(2.7)

Unemployment Rate (Ave., %)

4.7

4.0

3.9

3.7

3.5

3.5

3.8

3.7

4.4

RBA Cash Rate, End Period (%)

0.10

0.10

0.85

2.10

2.85

3.10

2.85

2.85

2.60

US$/AUS$, End Period

0.73

0.75

0.69

0.68

0.660.660.66

0.64

0.64

New Zealand

GDP (production basis)

3.0(3.1)

-0.2(1.2)

1.6(0.5)

0.9(5.4)

0.6(3.0)

0.3(3.5)

(2.5)

(2.0)

(1.7)

CPI Inflation (NSA)

(5.9)

(6.9)

(6.7)

(5.6)

(4.8)

(3.7)

(6.0)

(2.9)

(2.3)

Core CPI Inflation1 (NSA)

(5.4)

(5.9)

(6.0)

(4.9)

(4.3)

(3.8)

(5.3)

(2.9)

(2.1)

Unemployment Rate (%)

3.2

3.2

3.6

3.7

3.8

3.9

3.6

4.2

4.6

RBNZ Cash Rate, End Period (%)

0.75

1.00

2.00

3.00

3.50

3.50

3.50

3.00

2.75

US$/NZ$, End Period

0.68

0.70

0.630.620.600.600.600.580.58

Aus$/NZ$, End Period

0.94

0.93

0.91

0.910.91

0.91

0.910.910.91

Sources: Bloomberg, Capital Economics; 1Excludes food, household energy and vehicle fuel.


More 50bp hikes coming

Australia & New Zealand Economics Weekly

27 June 2022

Our view

The RBNZ will continue to hike rate aggressively throughout this year, but we think plunging house prices, weaker dwellings investment and slowing inflation will force it to cut rates next year. And while the analyst consensus is that the RBA won’t lift rates much above 2%, we expect a peak of 3.0%. After all, inflation is set to reach higher levels than most anticipate and most analysts are overestimating the Bank’s sensitivity to falling house prices at a time of surging price pressure. Nonetheless, we believe that the biggest housing downturn in modern history will force the RBA to cut interest rates next year.

Latest Outlook

Australia & New Zealand Economic Outlook

RBA to tighten more sharply than most anticipate

We expect Australia’s GDP to surpass its pre-virus trend as soon as this quarter and to keep expanding at a robust pace thereafter. While wage growth will accelerate only gradually, we expect inflation to surge to 5% by the middle of this year. That forecast is well above the analyst consensus and the RBA’s forecasts. Accordingly, the 175bp of RBA rate hikes that we anticipate is well above the consensus, too, though not quite as aggressive as what the financial markets are pricing in.

7 April 2022