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Higher vaccine supply will render lockdowns obsolete

With the virus outbreak in New South Wales going from bad to worse we’re pencilling in a marked slowdown in Q3 GDP growth. However, given that deliveries of the Pfizer vaccine have been brought forward and more people are now encouraged to take the AstraZeneca one, we still expect most adults to be vaccinated by year-end so lockdowns should become a thing of the past before long.
Marcel Thieliant Senior Japan, Australia & 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.

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Australia & New Zealand Data Response

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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.

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Australia & New Zealand Data Response

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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.

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Japan Economics Update

GDP to rebound in Q3 despite restrictions in Tokyo

While new infections in Tokyo have picked up, the fourth state of emergency in the capital is partly a political move designed to placate fears that the Tokyo Olympics will trigger yet another virus wave. With the health situation in other prefectures less problematic and the bulk of the elderly vaccinated by the end of the month, we assume that other prefectures will stick to light touch quasi-emergency measures.

12 July 2021

Australia & New Zealand Economics Weekly

RBA’s central scenario may signal rate hikes soon

The RBA began shifting the stance of monetary policy this week by watering down its commitment to keep rates on hold for the foreseeable future. The Bank’s central scenario is still consistent with rates remaining on hold until 2024, but the Bank has consistently underestimated the pace of the economic rebound. The Bank will probably revise up its forecasts again in August and we think it will start to hike rates in early-2023.

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Japan Economics Weekly

Pandemic unlikely to herald period of higher inflation

With producer prices rising at their fastest pace in years and goods shortages showing no signs of easing, the risks to inflation seem to be tilted to the upside. However, we aren’t convinced that a prolonged period of stronger consumer price inflation is on the cards and only expect underlying inflation to average 0.7% next year.

9 July 2021
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