Australia & New Zealand
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Australia & New Zealand

Australia & New Zealand Economics Weekly

Plans to double migration sound good in theory

The new NSW premier has received advice that Australia should double the pace of migration in the coming years to make up for lost population growth. That plan would help ease labour shortages, boost tax revenue and lift GDP growth. We already expect Australia to grow by more than the consensus anticipates next year, but if Australia is able to double the pace of migration growth, GDP would be even stronger than we expect.

15 October 2021

Australia & New Zealand Economic Outlook

Rising inflationary pressures to prompt tightening

Domestic demand is set to rebound from recent lockdowns and labour markets should remain tight. Meanwhile, soaring energy and food prices will keep inflation high for a prolonged period. To be sure, the Reserve Bank of Australia won’t respond to high headline inflation until wage growth picks up in earnest. However, with severe staff shortages and limited immigration, the bargaining position of workers is strong and we expect Australia’s wage growth to reach 3% by the end of next year. We expect the RBNZ to hike rates to 1.5% next year and the RBA to start lifting rates in early-2023.

14 October 2021

Australia & New Zealand Data Response

Australia Labour Market (Sep.)

While employment plunged yet again in September, hours worked started to rebound and the end of lockdowns will result in a rapid recovery in the labour market over coming months.

14 October 2021

Key Forecasts

Main Economic & Market Forecasts

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

Q1 2021

Q2 2021

Q3 2021

Q4 2021

Q1 2022

Q2 2022

2021

2022

2023

Australia

GDP

1.9(1.3)

0.7(9.6)

-3.0(2.7)

0.9(0.4)

2.6(1.1)

2.2(2.6)

(3.4)

(4.5)

(4.2)

CPI Inflation (nsa)

(1.1)

(3.8)

(3.2)

(3.1)

(2.8)

(2.5)

(2.8)

(2.4)

(2.3)

Core CPI Inflation1 (nsa)

(1.9)

(3.9)

(2.7)

(1.8)

(2.0)

(2.2)

(2.6)

(2.1)

(2.4)

Unemployment Rate (Ave., %)

6.0

5.1

4.6

4.8

4.5

4.4

5.1

4.3

4.0

RBA Cash Rate, End Period (%)

0.10

0.10

0.10

0.10

0.10

0.10

0.10

0.10

0.75

US$/AUS$, End Period

0.76

0.75

0.72

0.70

0.70

0.70

0.70

0.70

0.71

New Zealand

GDP (production basis)

1.4(2.9)

2.8(17.4)

-5.1(-2.2)

2.7(1.5)

2.2(2.3)

0.5(0.1)

(4.5)

(3.2)

(2.8)

CPI Inflation (nsa)

(1.5)

(3.3)

(4.1)

(4.1)

(3.9)

(3.1)

(3.3)

(3.0)

(2.5)

Core CPI Inflation1 (nsa)

(2.0)

(3.3)

(3.6)

(3.4)

(3.4)

(2.7)

(3.1)

(2.8)

(2.7)

Unemployment Rate (%)

4.6

4.0

4.0

4.0

4.0

3.9

4.1

3.9

3.8

RBNZ Cash Rate, End Period (%)

0.25

0.25

0.25

0.75

1.00

1.25

0.75

1.50

1.50

US$/NZ$, End Period

0.70

0.70

0.69

0.68

0.68

0.68

0.68

0.68

0.70

Aus$/NZ$, End Period

0.92

0.93

0.95

0.93

0.94

0.94

0.93

0.96

0.99

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


Plans to double migration sound good in theory

Australia & New Zealand Economics Weekly

17 October 2021

Our view

The RBNZ has started to hike rates and we think it will tighten policy more rapidly than the analyst consensus anticipates, though less than what financial markets price in. The RBA believes that the recent spike in inflation will prove transitory but we think that soaring food, coal and gas prices will keep inflation elevated for longer. There are early signs that rising living costs will have second-round effects in the form of higher wages and we stick to our view that the RBA will hike rates in early-2023, earlier than most anticipate. However, further falls in commodity prices should result in a renewed weakening of the Australian dollar.

Latest Outlook

Australia & New Zealand Economic Outlook

Rising inflationary pressures to prompt tightening

Domestic demand is set to rebound from recent lockdowns and labour markets should remain tight. Meanwhile, soaring energy and food prices will keep inflation high for a prolonged period. To be sure, the Reserve Bank of Australia won’t respond to high headline inflation until wage growth picks up in earnest. However, with severe staff shortages and limited immigration, the bargaining position of workers is strong and we expect Australia’s wage growth to reach 3% by the end of next year. We expect the RBNZ to hike rates to 1.5% next year and the RBA to start lifting rates in early-2023.

14 October 2021