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The Reserve Bank of Australia today doubled down on its commitment to keep monetary policy settings loose and we reiterate our view that it will expand its bond purchase program by another $100bn in June. The Bank kept its target for the cash rate and the …
2nd March 2021
Labour markets in both countries have tightened in recent months. In Australia, the unemployment rate has fallen from a peak of 7.1% to just 6.4% in January. And other measures of spare capacity have tightened even more sharply. The underemployment rate …
1st March 2021
House prices to continue rising this year House prices are now surging which poses an upside risk to our forecast that prices will rise 10% between January and December this year. Across the eight capital cities, house prices rose by 2.1% m/m in February, …
We doubt that the Reserve Bank of New Zealand’s new obligation to consider house prices will drastically change the outlook for monetary policy. But given that house price growth remains very strong, there is a risk that the Bank tightens policy earlier …
26th February 2021
Bond yields soaring to two-year high The key market theme this month has been the surge in long-term government bond yields. While that rise is partly driven by worries that another large stimulus package in the US will lift inflation, yields have risen …
Capital investment set to surge this year We estimate that private investment rose by 2.6% q/q in Q4, and firms’ expectations of future capital expenditure suggest investment is set to surge this year. Today’s private capital expenditure survey showed a …
25th February 2021
The financial markets have started to price in a rate hike as soon as early-2023 Labour market tightening but wage growth and inflation set to fall short of RBA’s targets We expect the first rate hike to be delayed until early-2024 and bond yields to fall …
24th February 2021
The Reserve Bank of New Zealand (RBNZ) sounded dovish when it left policy settings unchanged today, but we still expect the Bank to begin increasing rates next year. As expected, the RBNZ did not adjust the OCR or its asset purchase program at today’s …
Wage growth will need to strengthen much further for RBA to hike The jump in wages in Q4 was partly due to temporary wage cuts implemented during the pandemic unwinding, but it supports our view that wage growth will rebound more sharply than most …
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 …
22nd February 2021
Short lockdowns unlikely to disrupt recovery Brief, localised lockdowns are increasingly becoming the norm in Australia and New Zealand as officials seek to contain outbreaks, particularly given concerns about more infectious strains of the virus. But the …
19th February 2021
Unemployment to keep falling rapidly While employment growth slowed in January, it should remain strong enough to lower the unemployment rate to 5.5% by the end of this year . The 29,100 rise in employment in January was a bit weaker than the consensus of …
18th February 2021
Economic rebound means the RBNZ done easing The Bank has already slowed the pace of asset purchases We expect the Bank to end quantitave easing this year before hiking rates in 2022 Economic data since the Bank’s last meeting have shown the New Zealand …
17th February 2021
RBNZ cracks down on the housing market In April 2020, the RBNZ removed its existing LVR restrictions for housing loans which stipulated that banks could not lend more than 80% of loans to owner-occupiers with loan-to-value (LTV) ratios above 80% and no …
11th February 2021
While the exchange rate has strengthened sharply, goods prices are unlikely to fall. That should allow rising services prices to keep underlying inflation stable. Goods inflation rose to its highest rate in nearly 20 years at the end of 2020. One driver …
10th February 2021
With job losses during the pandemic concentrated in a handful of sectors and demand set to rebound as vaccines are rolled out, we think that the unemployment rate will fall to 5.5% by the end of this year. The virus has hit some industries much harder …
8th February 2021
RBNZ tightening looking more likely Just three weeks ago we unveiled our non-consensus forecast that the Reserve Bank of New Zealand would begin raising rates in 2022. Since then a string of positive data releases has confirmed our view that the economy …
5th February 2021
Retail Sales to ease from here The decline in retail sales in December largely just reflects the impact of Black Friday sales. Given the reopening of the Victorian economy in Q4 consumption probably still rose strongly in the quarter. Retail sales values …
Net trade to remain broadly neutral December’s rise in exports partly reflects higher commodity prices and with goods import volumes above pre-virus levels, we think that net trade won’t be a big contributor to GDP growth over coming quarters. The 2.8% …
4th February 2021
The recent surge in building approvals has largely been driven by the HomeBuilder Grant and probably won’t last. But with home sales soaring and house prices rising, dwellings investment should continue to recover even once HomeBuilder ends. Building …
3rd February 2021
We are more upbeat about the outlook for the economy than the Reserve Bank of Australia. But the RBA seems keen to err on the side of caution. With the latest extension of its QE programme already ending in August, we suspect the Bank will announce one …
Unemployment rate should continue to decline in 2021 The fall in the unemployment rate to 4.9% in New Zealand means the rate is already past the peak and we expect the labour market to continue to tighten throughout 2021. The 0.6% q/q rise in employment …
2nd February 2021
The RBA today upgraded its labour market forecasts but noted that the recovery remained dependent on “significant fiscal and monetary support”. Indeed, the Bank extended its Bond Purchase Program by another $100bn and indicated that it won’t raise …
Underlying inflation picked up strongly in New Zealand in Q4, with core inflation rising above the mid-point of the RBNZ’s 1-3% target band. That supports our view that the RBNZ will not cut rates further. But we expect strong house price growth and a …
1st February 2021
House prices to rise by 10% in 2021 House prices are already rising at a solid pace but forward indicators suggest that the pace of gains is set to increase in the months ahead. Across the eight capital cities, house prices rose by 0.7% m/m in January, …
Inflation set to rise further The 0.9% q/q rise in consumer prices in Q4 was much stronger than the RBA’s forecast of 0.5% q/q. That said, the pick-up in annual inflation was entirely driven by administered goods as child-care subsidies and a freeze in …
29th January 2021
RBA may choose to keep up with large asset purchases by overseas central banks But labour market doing much better than Bank had anticipated Balance of financial stability risks starting to shift as credit growth set to surge While the Reserve Bank of …
27th January 2021
Underlying inflation to strength this year The rise in inflation in Q4 was partly driven by volatile movements but we think inflation will rise in earnest before long. The 0.9% q/q rise in consumer prices in Q4 was higher than the consensus forecast of …
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 …
26th January 2021
Our base case remains that the RBA will end quantitative easing in April. However, one risk to that forecast is the rising share of long-term unemployment. According to estimates by both the RBA and the OECD, the natural rate of unemployment rose after …
25th January 2021
Risks from JobKeeper phase out keep diminishing Even though the participation rate hit a fresh record-high, Australia’s unemployment rate fell to 6.6% in December. Across the fourth quarter, the unemployment rate has averaged 6.8%, far below the RBA’s …
22nd January 2021
Inflation to continue its rise in 2021 The sharp rise in underlying inflation in Q4 is consistent with our view that the RBNZ will tighten policy in the years ahead. Prices in Q3 rose 0.5% q/q, well above the analyst consensus or than the RBNZ’s latest …
21st January 2021
Unemployment Rate to continue to plunge The further decline in the unemployment rate in December is consistent with our view that the RBA will not extend its asset purchases beyond April. The 50,000 rise in employment was in December was exactly in line …
Overview - The recovery in GDP and employment in both Australia and New Zealand is set to continue surprising to the upside. As such, we expect the RBA to stop its QE programme in April. Meanwhile, we estimate that New Zealand’s economy has already …
18th January 2021
Australia has to rely on less effective vaccines We argued last week that Australia may vaccinate all vulnerable people by May, allowing most restrictions on activity to be relaxed. Indeed, Australia has ordered sufficient vaccine doses to inoculate its …
15th January 2021
Vaccine rollout to begin slightly earlier This week Prime Minister Scott Morrison revealed that the vaccine rollout may be brought forward to mid to late February. Mr Morrison said he hoped the Pfizer/BioNTech vaccine would be approved by the end of …
8th January 2021
Trade was a modest drag on growth in Q4 A surge in imports meant that the trade balance narrowed in November so we now think that trade was a modest drag on growth in Q4. The decline in the trade balance from $6583mn in October to $5022mn in November was …
7th January 2021
House prices may rise by 10% in 2021 House prices continue to rise strongly in Australia and we now think they will rise by 10% between the end of 2020 and the start of 2021. Across the eight capital cities, house prices rose by 0.9% m/m in December. …
4th January 2021
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 …
23rd December 2020
The 7.9% q/q recovery in consumption in Australia in Q3 still left it 6.8% below pre-virus levels. Even excluding Victoria, consumption only recovered to around 4.5% below pre-virus levels. And since the huge stimulus payments continued and labour income …
22nd December 2020
Coal the latest victim of trade war with China Chinese steel mills and power plants were told to stop importing Australian coal at the start of October. More recently, China has relaxed coal import quotas for major power plants due to domestic supply …
18th December 2020
The fact that the government revised up its estimate for the underlying cash balance in 2020/21 by more than 1% of GDP since the October Budget underlines that the economy is recovering much faster than most had anticipated. The government’s GDP growth …
17th December 2020
Upside surprise is under way The fall in the unemployment rate to 6.8% in November leaves it on track to fall to 6% by the middle of next year and is consistent with our view that the RBA won’t expand quantitative easing any further. The 90,000 rise in …
Strong rebound sets the stage for solid 2021 The extraordinary rebound in New Zealand’s GDP was probably driven, in part, by the release of pent-up demand, but we still expect output to rise further in the months ahead. The 14.0% quarterly rise in …
16th December 2020
We think that the recovery from the pandemic will be stronger than most anticipate. That means that the labour market will tighten rapidly, allowing central banks to end their bond purchases. The upshot is that both the Australian dollar and the New …
Credit rating downgrade unlikely to lift bond yields S&P Global Ratings downgraded the credit ratings of New South Wales and Victoria this week from AAA to AA+ and AA respectively. Both states have held the prestigious AAA rating since 2003 and entered …
11th December 2020
The capital ratios of Australian banks may decline a bit as loan deferrals come to an end and other policy support is withdrawn. But with capital ratios having almost doubled since the GFC and underlying profitability sound, the banking sector won’t be a …
10th December 2020
Consumption set to rebound further The 3.3% q/q rebound in Q3 GDP was stronger than most had expected. The 7.9% q/q rise in consumption reversed half of the drop in Q3, but some sectors are still on their knees. For example, spending on accommodation …
4th December 2020
Rebound in retail sales to continue in November The rebound in retail sales in October is likely to be overshadowed by an even larger increase in November as Victoria reopens . The 1.4% m/m rise in retail sales values in October was smaller than the …
Trade won't big a big drag on growth again in Q4 The trade balance widened in October but the widening was partly driven by price effects so we estimate that net exports made little contribution to GDP growth in Q4. The rise in the trade balance from …
3rd December 2020
