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Australia & New Zealand

Australia & New Zealand Economic 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

Australia & New Zealand Economic Outlook

RBNZ will ease even as RBA starts to tighten

Australia’s Omicron outbreak will hold back the recovery this quarter, but there are plenty of reasons why Australia will outperform New Zealand over the next couple of years. As the labour market has tightened more rapidly than we had anticipated, we’ve brought forward our forecast for the first RBA rate hike from February 2023 to November 2022. By contrast, we expect New Zealand’s housing market to come off the boil this year which should prompt the Reserve Bank of New Zealand to end its hiking cycle at 2.0% this year and start cutting interest rates in 2023. Our views on monetary policy are more dovish than what’s priced into financial markets so we expect 10-year government yields to be little changed. What’s more, we expect the New Zealand dollar to weaken against the Australian dollar.

20 January 2022

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
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Australia & New Zealand Economic Outlook

Central banks to tighten as bust turns to boom

Sydney’s lockdown will keep a lid on Australia’s recovery for now, but booming housing markets should support consumer spending and dwellings investment in both countries. We don’t expect labour shortages to ease much when the border opens, so wages growth may finally accelerate. That should prompt the RBNZ to start hiking rates next month and the RBA to follow in 2023.

Australia & New Zealand Economic Outlook

Tighter monetary policy on the horizon

The speed of the vaccination rollout has been disappointing and brief, localised lockdowns have set back the recovery in both countries. But vaccine supply should improve over the coming months which should allow those sectors still severely affected by the pandemic to recover in the second half of the year. We’re sticking to our above-consensus GDP forecasts and expect the RBNZ to start hiking next year and the RBA by end-2023.

Australia & New Zealand Economic Outlook

Surge in growth will allow central banks to step back

The recovery in GDP and employment in both Australia and New Zealand is set to continue surprising to the upside. As such, we expect the RBA to stop its QE programme in April. Meanwhile, we estimate that New Zealand’s economy has already returned to its pre-virus growth path. With the housing market overheating and surveys pointing to rising price pressures, we think the RBNZ could become the first advanced economy central bank to hike interest rates.

Australia & New Zealand Economic Outlook

Huge policy support paves way for strong recovery

Australia and New Zealand have had far greater success in containing the virus than most other large advanced economies. Coupled with huge fiscal support, that means that the recovery in economic activity could surprise to the upside next year. Central banks in both countries are set to ease policy further over the coming months, but this is now largely priced in. As such, we expect both the Australian dollar and the New Zealand dollar to recover further as risk appetite improves.

Australia & New Zealand Economic Outlook

More stimulus needed as recovery set to slow

The renewed virus outbreak in Victoria underlines that the recent strength of the recovery won’t be maintained. We expect output to remain below pre-virus levels until the end of next year. While the labour market has held up better than we anticipated, inflation is still set to fall sharply. We expect the RBNZ to launch negative interest rates and the RBA to resume its bond purchases next year.

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