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Australia-China trade tensions unlikely to boil over

The rising trade tensions between Australia and China in recent weeks are unlikely to meaningfully damage Australian exports. While China may introduce tariffs on Australian coal, it is unlikely to target iron ore and liquefied natural gas.
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 Data Response

Australia CoreLogic House Prices (May)

House prices are surging but forward indicators point to growth slowing in the months ahead. Indeed, we suspect prices may decline a little in 2021.

1 June 2021

Australia & New Zealand Chart Book

Fiscal policy to remain loose for longer

Australian Treasurer Josh Frydenberg noted in October that the Government would not pursue budget repair until the unemployment rated was comfortably below 6%. However, the unemployment rate fell much more rapidly ahead of the May Budget than almost anyone had anticipated, reaching around 5.5%. The Treasurer responded by noting that the conditions for reducing the budget shortfall aren’t in place yet and unveiled additional stimulus measures in the Budget. And while the recent sharp decline in spending means that the New Zealand government is on track to shrink the structural deficit in 2020/21, the government unveiled considerable fresh spending in its latest Budget, too. The upshot is that the structural budget balance in both countries will remain deeply in negative territory for years to come.

31 May 2021

Australia & New Zealand Economics Weekly

Australia’s recovery set back, RBNZ signals rate hikes

The outbreak of the Indian virus variant in Victoria this week highlights the risks from the slow vaccine roll-out. Despite strong investment figures for Q1, we are sticking to our forecast that the economy will expand 4.5% this year. Meanwhile, the Reserve Bank of New Zealand has come around to our view that interest rates should be lifted next year. And its forecasts now imply an even faster pace of tightening than we had anticipated. Even so, given the Bank’s poor experience with past tightening cycles, we still expect the Bank to err on the side of caution.

28 May 2021
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