Australia & New Zealand
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Australia & New Zealand

Australia & New Zealand Economics Focus

Australia & New Zealand Economics Focus

The impact of the pandemic on inflation

We expect inflation to rise to the mid-point of the RBA’s target band over the next couple of years. The main driver is a continued tightening of the labour market and a pick-up in wage growth. By contrast, we think that the goods supply shortages resulting from the pandemic will subside before long and will be more than offset by a plunge in import prices due to the stronger exchange rate.

2 June 2021

Australia & New Zealand Economics Focus

Australia - Pandemic unlikely to result in long-term scarring

The closure of the border will reduce Australia’s potential output by around 2.5%. But this will be partly offset by higher productivity growth due to increased usage of technology and more employees working from home. And the usual red flags that have signalled a permanent loss of output ahead of previous downturns are mostly absent. The upshot is that a prolonged period of austerity may not be needed after all and the Reserve Bank of Australia should be able to tighten monetary policy before long.

6 May 2021

Australia & New Zealand Economics Focus

Pandemic-driven staff shortages could lift wage growth

Even though the unemployment rate is still as high as it was during the mining bust, job vacancies and the share of firms reporting staff shortages have surged. We suspect that this has been driven by a broad-based drop in labour mobility during the pandemic and net migration turning from a large boost to labour force growth to a small drag. As vaccines are rolled out and restrictions are relaxed, the functioning of the labour market should improve. But coupled with our optimistic forecasts for unemployment, firms’ inability to find suitable staff means that wage growth could rebound faster than most anticipate.

22 February 2021
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Australia & New Zealand Economics Focus

RBNZ to hike rates next year

We now expect the RBNZ to tighten monetary policy in the years ahead as GDP growth, the labour market and inflation will be much stronger than the Bank has anticipated. We expect asset purchases to be wound down from this year before the Bank hikes rates in 2022.

Australia & New Zealand Economics Focus

The impact of China’s trade restrictions on Australia

We estimate that the exports of goods and services that are already facing restrictions by China contribute around 1.8% to Australia’s GDP. While we still expect iron ore and liquefied natural gas exports to remain spared, that figure could rise to around 2.8% of GDP if China targeted other products for which it isn’t hugely dependent on Australian imports. While Australia should be able to divert some shipments to other countries, the escalating trade war is another reason why Australia’s economy will never return to its pre-virus path even once the pandemic has been brought under control.

23 December 2020

Australia & New Zealand Economics Focus

House prices may rise by 7% in 2021

The improvement in the labour market, lower borrowing costs and a turnaround in leading indicators all suggest that the housing downturn will soon come to an end. We now expect house prices across the eight capital cities to fall by just 3% from their peak in April and to rise by 7% in 2021.

Australia & New Zealand Economics Focus

Lasting blow to supply capacity is not inevitable

It is by no means inevitable that the coronavirus crisis puts a big permanent hole in the supply capacity of economies (i.e. their ability to produce goods and services). With the right government policies, many economies should be able more or less to revert to the path of output they were on before the crisis. Nonetheless, with demand likely to be slow to recover fully, this could still take several years. And there will be several important exceptions to this generally optimistic picture.

Australia & New Zealand Economics Focus

Australia - How will policymakers rein in soaring public debt?

Australia’s gross government debt/GDP ratio will hit the highest level since WWII by 2022/23. While the budget deficit will narrow again over the coming years as tax revenues rebound and stimulus measures expire, it will remain consistent with rising debt levels. However, the financial markets probably won’t be spooked and the RBA should help by keeping government bond yields low. As such, the government will get away with only modest austerity that won’t undermine the recovery.

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