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Australia & New Zealand Economics Update

Australia & New Zealand Economics Update

RBNZ confirms hiking cycle to be followed by cuts

The RBNZ sounded hawkish when it hiked rates by 50bp today, and we now think rates will rise to 3.5% by the end of this year. But the Bank endorsed our long-held non-consensus view that rate cuts will be required in the years ahead. We think the Bank will begin cutting rates from the second half of next year.

25 May 2022

Australia & New Zealand Economics Update

Australia - Housing downturn could force earlier rate cuts

House prices are starting to fall across Australia earlier than we had anticipated. While we still expect the RBA to hike rates until early-2023, the experience from previous housing downturns points to an earlier end to the current tightening cycle. What’s more, a severe housing downturn could prompt the Bank to cut rates earlier than our current forecast of mid-2024 if inflation drops back again in earnest.

24 May 2022

Australia & New Zealand Economics Update

What does a Labor government mean for Australia?

A Labor government will probably keep fiscal policy looser than the previous Coalition government, putting more pressure on the RBA to hike interest rates. But while a Labor government will make greater efforts to decarbonise the economy, the bulk of mining output is exported so this won’t have a big impact on the mining industry. And we doubt Labor will be able to end the trade war with China.

23 May 2022
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Australia & New Zealand Economics Update

New Zealand - Budget boost will exacerbate inflationary pressures

While the government’s Budget was focused on equipping households to withstand surging living costs, by adding to demand we think it will cause inflation to be higher over the next year. That’s all the more reason for the RBNZ to continue hiking rates aggressively throughout this year.

Australia & New Zealand Economics Update

New Zealand - Wage growth will rise further before it falls

The 6% rise in the minimum wage will help lift wage growth further this year. But a loosening labour market and smaller minimum wage hikes in the years ahead will facilitate a slow down in wage growth from next year. Markets Drop-In (11th May, 10:00 EDT/15:00 BST): We’re discussing our Q2 Outlook reports and what they say about the potential performance of bonds, equities and FX rates as inflation peaks in a special 20-minute briefing on Wednesday. Register now.

Australia & New Zealand Economics Update

Australia - Falling real incomes won’t derail consumption for now

The sharpest fall in real incomes since the 1990/91 recession won’t prevent a strong rebound in consumption this year and next. But with the tailwind from reopening the economy set to fade, consumption and GDP growth will fall below trend in 2024, prompting the RBA to cut interest rates. Markets Drop-In (11th May, 10:00 EDT/15:00 BST): We’re discussing our Q2 Outlook reports and what they say about the potential performance of bonds, equities and FX rates as inflation peaks in a special 20-minute briefing on Wednesday. Register now.

Australia & New Zealand Economics Update

Hawkish RBA will hike rates to 2% by year-end

The RBA started hiking the cash rate today and sounded hawkish for the first since the start of the pandemic. Our forecast that interest rates will reach 2% by year-end is far above the analyst consensus of 1%, but the risks are tilted to the upside.

Australia & New Zealand Economics Update

Aussie and Kiwi to fall back as tightening cycles underwhelm

The Aussie and the Kiwi have been amongst the best performing G10 currencies against the US dollar so far this year but, while we expect both to remain resilient in 2022, we eventually expect them to weaken. In view of the wider interest, we are also sending this FX Markets Update to clients of our Australia & New Zealand Service.

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