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New Zealand Labour Market (Q1 2022)

The continued tightness in the New Zealand labour market despite the omicron outbreak provides further evidence that the economy is still running hot. That’s why we expect the RBNZ to hike rates by 50 basis points in May.
Ben Udy Australia and New Zealand Economist
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Australia & New Zealand Economics Weekly

Housing downturn to weigh on activity

The housing downturn is now in full swing. While that hasn’t prevented a solid rise in consumption in Q2, we think falling wealth will be a drag on consumer spending next year. What’s more, our forecast that house prices will eventually fall 15% from their April peak would be consistent with dwelling investment falling sharply in the coming years. The upshot is that the housing downturn will bring the Australian economy close to recession next year.

1 July 2022

Australia & New Zealand Data Response

Australia CoreLogic House Prices (Jun.)

The monthly decline in house prices in June was the largest since 2019 but is unlikely to be the sharpest decline in the current downturn. We think house prices will eventually fall by 15% from their April peak, which will weigh heavily on GDP growth next year.

1 July 2022

Australia & New Zealand Data Response

Australia Retail Sales (May 2022)

The strong rise in retail sales in May highlights the strength in the Australian economy and is consistent with our view that the RBA will continue to hike rates aggressively in the months ahead.

29 June 2022

More from Ben Udy

Australia & New Zealand Economics Weekly

RBA will hike by 15bp next week

Inflation is now surging in Australia and that surge is spreading well beyond the impact of soaring commodity prices. We therefore think the RBA needs to begin tightening policy. The RBA might want to avoid politicising its decision and wait until after the federal election in May. But with a number of politicians voicing their opinion on rate hikes, the RBA should demonstrate its independence by ignoring the politics and focusing on the economic data. We now think the Bank will kick off its hiking cycle with a 15bp hike in May.

29 April 2022

Australia & New Zealand Economics Weekly

RBA set to hike aggressively this year

The minutes of the  RBA’s April meeting show that it is coming around to our view that rates will need to be hiked before long. We expect next week’s Q1 CPI data to show inflation surpassing 4%, which will be enough to convince the Bank to hike rates in June. What’s more, we now think the RBA will hike rates to 1.75% by the end of this year and to 2.5% in 2023. Indeed, we think the Bank will hike rates at every meeting from June this year. But the RBA’s more frequent meeting schedule means it will not need to follow the RBNZ’s lead and hike rates by 50bp at any meeting.

22 April 2022

Australia & New Zealand Chart Book

Central Bankers’ confidence dilemma

Inflation is surging in both Australia and New Zealand. That is putting pressure on central banks to hike interest rates to slow the economy and curb inflation. But both the RBNZ and the RBA highlighted waning consumer confidence at their April meeting. While confidence isn’t particularly weak in Australia, it has slumped to record-low in New Zealand.  The details of both consumer confidence reports highlight high inflation as a significant drag on sentiment. With inflation at around 7% in New Zealand but closer to 4% in Australia, that explains why the hit to confidence has been larger in New Zealand. However, we don’t expect the weakness in confidence to derail the recovery in consumption. The household savings rate in Australia remains well above pre-virus levels and retail sales kept rising throughout the first two months of the year. As such, central banks are still likely to prioritise the fight against inflation and opt for aggressive rate hikes.

21 April 2022
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