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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 …
31st May 2021
Investment rebound offset by lockdown The whopping 9.1% rise in machinery and equipment investment in the private capital expenditure survey was more than enough to offset the small decline in non-residential construction in the building works done data. …
28th May 2021
Capital investment rebound to continue We estimate that private investment rose by 4.1% q/q in Q1 and firms’ expectations of future capital expenditure suggest the strong rebound in investment is set to continue in the months ahead. Today’s private …
27th May 2021
In the short-run, China has no choice but to grit its teeth and keep buying Australian iron ore, even as bilateral ties continue to fray . But this dependence will diminish over time thanks to increased supply from other sources, greater use of recycled …
26th May 2021
The Reserve Bank of New Zealand sounded more optimistic at today’s meeting and signalled that it will start to hike rates in the second half of next year, in line with our long-standing forecast. If anything, the risks are that the Bank tightens policy …
Dovish RBA set to extend asset purchases by another $100bn in July However, early signs that inflation is about to recover strongly We think RBA will start to lift interest rates in late-2023 The Reserve Bank of Australia will still sound dovish at the …
25th May 2021
Tighter labour market will eventually lift wages The end of the JobKeeper wage subsidy resulted in a modest fall in employment in April. But a renewed drop in the participation rate meant that the unemployment rate declined from an upward revised 5.7% to …
21st May 2021
Jobs growth to resume, but at slower pace While the economy shed some jobs after the JobKeeper wage subsidy scheme came to an end, the surge in vacancies suggests employment will keep rising over the coming months . The 30,600 decline in employment in …
20th May 2021
RBNZ will tackle soaring house prices by restraining credit rather than raising rates However, economy should continue to recover towards tightening threshold We still expect the RBNZ to hike rates in 2022 While the Bank will acknowledge the new house …
19th May 2021
Wage growth will rise further but still has a long way to go The strength in wage growth in Q1 was partly due to one-off factors which will fade in the year ahead, but we still think the tightening in the labour market will see wage growth rise in earnest …
The release of the federal Budget on Tuesday took centre stage this week. (See our Update .) But the more striking development was the surge in the price of iron ore to a record high of nearly US$240 per tonne. (See Chart 1.) Chart 1: Iron Ore & LNG …
14th May 2021
Treasurer Josh Frydenberg revealed in today’s Budget that the government will spend nearly all of the windfall accruing from the stronger economic recovery. That will result in a permanently larger role of the state and a sizeable structural budget …
11th May 2021
Consumption may only return to pre-virus levels in second half The drop in real retail sales in Q1 suggests that the recovery in consumption slowed last quarter. And with the vaccination drive still slow, we think that consumption will only return to …
10th May 2021
RBA signals more support is required The Reserve Bank of Australia noted at this week’s policy meeting that it will decide whether to extend its bond purchases at its July meeting. And Deputy Governor Debelle noted yesterday that the decision will take …
7th May 2021
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 …
6th May 2021
While the government is likely to announce further tax relief at next week’s Budget, we suspect it will use nearly half of the recent improvement in the budget balance to reduce borrowing. Treasurer Josh Frydenberg will announce the Budget on Tuesday, 11 …
5th May 2021
Tighter labour market to herald RBNZ hikes next year The fall in the unemployment rate to 4.7% in New Zealand is consistent with our view that a continued tightening in the labour market will prompt the RBNZ to hike rates next year. The 0.6% q/q rise in …
The Reserve Bank of Australia upgraded its forecasts for GDP growth and inflation but reiterated that it is prepared to extend its asset purchases. We stick to our forecast of another $100bn extension in the Bank’s bond purchase program, though this would …
4th May 2021
Surge in headline inflation won’t last Consumer prices rose 0.6% q/q in Australia in Q1, well below the Bloomberg median forecast of a 0.9% q/q rise. And half of that rise was due to stronger fuel prices which meant that underlying inflation was subdued. …
30th April 2021
House prices are now surging in both countries. House price cycles in the Australian housing market tend to lag those in New Zealand a little, which is consistent with the forward indicators pointing to a rapid lift in the pace of annual Australian price …
29th April 2021
Stronger labour outturns largely offset by Bank’s lower estimate of natural rate Inflation very weak and set to pick up only slowly We expect a third $100bn round of QE and first rate hike only by end-2023 The Reserve Bank of Australia will revise down …
28th April 2021
Above target inflation won’t be sustained The weakness in underlying inflation in Q1 is consistent with our view that the Reserve Bank of Australia will announce a third $100bn round of asset purchases before long. And it suggests that the financial …
Consumption probably kept rising across Q1 The 1.4% m/m rise in retail sales values in March largely reflected the unwinding of lockdowns in Victoria and Western Australia. The bigger picture is that sales remained below their peak in November. Car …
23rd April 2021
New Zealand is playing with fire by criticising the human rights situation in China’s Xinjiang province. While China is highly dependent on New Zealand’s flagship dairy, meat and logs exports, it could impose restrictions on smaller product categories. We …
22nd April 2021
Continued strength in inflation will support rate hikes next year We think underlying inflation will remain close to the RBNZ’s target for the foreseeable future which supports our view that the RBNZ will hike rates next year. Prices in Q1 rose 0.8% q/q, …
21st April 2021
New Zealand’s experience suggests that the planned increase in risk-weightings for investor housing loans in Australia won’t act as a big deterrent to bank lending. If investor loan growth started to run hot, the banking regulator would have to respond …
19th April 2021
Households in a good position The RBA’s latest Financial Stability Review painted a rosy picture of financial stability risks. Household debt as a share of disposable income remained at a four-year low in Q4 despite the fall in incomes as stimulus was …
16th April 2021
Overview – 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 …
15th April 2021
Employment to keep rising even as JobKeeper ends The continued tightening of the labour market in March means that a further extension of quantitative easing isn't a done deal, but amid weak wage growth and inflation we still expect the RBA to press ahead …
The Reserve Bank of New Zealand (RBNZ) stuck to its dovish stance when it left policy settings unchanged today, but we still expect the Bank to raise rates towards the end of next year. As expected, the Bank did not adjust its policy rate or its asset …
14th April 2021
Travel bubble launch New Zealand’s government this week confirmed that a travel bubble with Australia will begin on 19 th April. As we previously discussed, the impact on GDP is likely to be small for both countries as the boost from increased spending in …
9th April 2021
RBNZ should shrug off second technical recession and keep policy unchanged The Bank’s new house price focus shouldn’t change the policy outlook We still expect the RBNZ to hike rates in 2022 New Zealand has probably experienced a second technical …
7th April 2021
The Reserve Bank of Australia stuck to its dovish stance despite the strength in recent data so we reiterate our view that it will expand its bond purchase program by another $100bn in June. The Bank acknowledged the recent improvement in the global …
6th April 2021
Passing the buck House prices are surging in Australia. Prices rose 2.8% in March which translates to an incredible annualised pace of more than 30%. Housing finance commitments in February also point to annual price growth reaching 30% before long. (See …
1st April 2021
House price growth should ease later this year House prices are surging but forward indicators somewhat mixed and we suspect the pace of price growth will ease in the second half of this year. Across the eight capital cities, house prices rose by 2.8% m/m …
Trade may have been a drag on growth in Q1 Retail sales and the trade surplus declined in February but while we still expect consumption to rise in Q1, net trade may have been a drag on growth. The trade surplus narrowed in February from $9.6bn to $7.5bn …
RBA will remain committed to its bond yield target And should extend QE once more in June Market too bullish on rate hikes In recent weeks, the Reserve Bank of Australia has continued to push back against expectations of monetary tightening. We think the …
31st March 2021
More moves to slow house price growth We’ve expressed doubts over the ability of the RBNZ’s loan-to-value ratio (LVR) limits which were implemented at the start of the month to slow the pace of house price growth very much. (See here .) The government …
26th March 2021
Even if the long-rumoured Australia-New Zealand travel bubble does go ahead, it wouldn’t make a huge difference to either economy. We think the bubble would give a small boost to New Zealand’s GDP and be a small drag on Australia. A travel bubble between …
24th March 2021
Sharp fall in unemployment Australian employment surged in February despite brief localised lockdowns in some states. The 88,700 rise was enough to pull down the unemployment rate from 6.4% to 5.8%. That’s just 0.6 ppts higher than the pre-virus level and …
19th March 2021
Tightening in the labour market has further to run The surge in employment in February is consistent with our view that the Australian labour market is tightening much faster than most expect. The 89,100 rise in employment in February much stronger than …
18th March 2021
Second technical recession all but confirmed The solid decline in activity in Q4 means that a second recession is imminent as GDP is bound to decline in Q1. The 1.0% quarterly fall in production GDP was larger than the Bloomberg consensus of a 0.2% q/q …
17th March 2021
Housing finance commitments have surged in recent months pointing to a rise in credit growth before long. But we don’t think lending standards have been eroded so this shouldn’t stop the RBA from announcing an extension to its QE again in June. Household …
RBA defends yield target The sell-off in government bond markets in recent weeks resulted in a deterioration in liquidity conditions, with bid-ask spreads reaching the highest level since last year’s panic. (See Chart 1.) The Bank responded last Monday by …
12th March 2021
Today’s dovish speech by RBA Governor Lowe supports our view that the RBA is set to keep monetary policy accommodative for a long time to come. But concerns about the functioning of the bond market may force the RBA to stop QE by the end of the year. …
10th March 2021
The slow progress in rolling out vaccines in New Zealand means that its border may only be reopened by the end of this year. With net migration boosting population growth by around 1%-pt per annum before the virus struck, we’ve lowered our forecast for …
8th March 2021
RBA responding half-heartedly to soaring yields Bond yields declined at the beginning of the week as the RBA on Monday stepped up its purchases of longer-dated bonds for the first time since the launch of quantitative easing in November. The Bank bought …
5th March 2021
While Australia’s non-iron ore export volumes to China have slumped by 40% over the past year, coal miners have been able to divert their shipments to other countries. The upshot is that the conflict isn’t as damaging to Australia’s economy as many think. …
4th March 2021
Trade should support GDP growth in Q1 Retail sales and the trade balance rose in January and while we expect retail sales to be subdued in the months ahead, export values may have further to rise. The trade balance widened in January from $7133bn to a …
Output to return to pre-virus levels by middle of the year The 3.1% q/q rise in Q4 GDP left output just 1.1% below pre-virus levels and we think it will surpass that threshold by Q2. The increase in GDP was stronger than the Bloomberg median of 2.5% and …
3rd March 2021
