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Output to return to pre-virus levels by Q2 2021 The rebound in Q3 GDP reversed around 40% of the decline during the first half of the year and we expect output to return to pre-virus levels by mid-2021. The 3.3% q/q rise in Q3 GDP was stronger than most …
2nd December 2020
The RBA still sounded cautious when it left policy settings unchanged today. But if our more optimistic forecasts for GDP growth and inflation are realised, the Bank may not decide to expand QE in April. The Bank kept both its cash rate target as well as …
1st December 2020
House prices may rise by 7% next year House prices are now rising in Australia and we reiterate our forecast that house prices will rise by 7% in 2021, though the risks look skewed to the upside. Across the eight capital cities, house prices rose by 0.8% …
New Zealand is likely to be one of the few countries where output had recovered to pre-virus levels in Q3. Taken together with the recent positive news on the vaccine, we no longer expect the RBNZ to cut rates into negative territory. New Zealand removed …
30th November 2020
We have been arguing for some time that the unemployment rate would not rise as much as most believed in either Australia or New Zealand. We remain confident in those forecasts. Admittedly, the unemployment rate rose from 4.0% to 5.3% in New Zealand in …
House prices ready to skyrocket Daily data from CoreLogic suggest house prices in Australia’s five largest capital cities have risen 0.9% from their trough in October. And leading indicators suggest prices may soar before long. Indeed, our sales to new …
27th November 2020
Australia and New Zealand will benefit less than other advanced economies from a vaccine due to their success in containing the virus. Even so, we’ve lifted our 2021 GDP growth forecasts a bit and no longer expect the RBA to expand quantitative easing …
26th November 2020
Capital investment may be approaching its trough We estimate that private investment fell by a modest 1.2% q/q in Q3, and firms’ expectations of future capital expenditure suggest we may be near the trough in investment . Today’s private capital …
Vaccine may be available by Q2 2020, allowing full reopening of the economy Labour market doing much better than Bank had anticipated Case for additional stimulus is diminishing The Reserve Bank of Australia won’t make any policy changes at its meeting on …
24th November 2020
RCEP won’t cool trade tensions Australia was one of 15 countries, including China, to sign the Regional Comprehensive Economic Partnership (RCEP) this week. Some analysts have expressed optimism that the signing of the deal would help cool the rising …
20th November 2020
The unemployment rate is past its peak The surge in employment in October largely preceded the relaxing of restrictions in Victoria so we expect that November data should show a further rise. The 178,800 rise in employment in October was much larger than …
19th November 2020
Annual wage growth should continue to ease The weakness in wage growth in Q3 was partly driven by the delay to the minimum wage increase but we still think overall wage growth will remain soft in the years ahead. The wage price index (WPI) showed wages …
18th November 2020
Output won’t return to pre-virus trend The US elections sent the ASX 200 to fresh highs last week as the prospect of a divided US government means that several measures proposed by president-elect Joe Biden are off the table . And it has risen further …
12th November 2020
The Reserve Bank of New Zealand’s (RBNZ) decision to implement a funding for lending programme in December should provide some further stimulus on its own and is another step towards implementing negative rates in 2021. The Bank did not adjust the OCR or …
11th November 2020
While card transaction data have overstated the health of consumer spending in recent years, we suspect they didn’t do so recently. As such, we’re willing to take the jump in transaction amounts in Q3 at face value and have pencilled in a strong rise in …
9th November 2020
China tensions continue to bubble Trade data this week suggest that trade was a big drag on Australia’s GDP growth in Q3, though that’s largely because the rebound in domestic demand lifted imports. And despite mounting trade tensions with China, exports …
6th November 2020
Economic data have been mixed but generally support further easing RBNZ to launch lending programme to lower funding costs RBNZ to cut OCR to -0.25% in April and hold rates steady thereafter At its meeting on 11 th November, the Bank will likely unveil a …
5th November 2020
Trade may a remain a drag on growth in the coming months The widening of the trade balance in September was not enough to prevent trade from being a significant drag on growth in Q3. The rise in the trade balance from $2617mn in August to $5629mn in …
Rebound in consumption has much further to run The strong rebound in retail sales in Q3 was probably matched by a rebound in services consumption and has further to run as Victoria reopens . The 1.1% m/m drop in retail sales values in September was …
4th November 2020
Unemployment rate won’t rise as much as most believe The rise in the unemployment rate to 5.3% in New Zealand in Q3 means the unemployment rate is close to its peak and we expect the labour market to tighten next year. The 0.8% q/q decline in employment …
3rd November 2020
The RBA didn’t disappoint when it cut interest rates and launched quantitative easing today. And even though it turned more optimistic about the economic outlook, we suspect it will expand its government bond purchases beyond the planned six months . The …
House prices may rise by 7% next year Australia’s housing downturn came to an end last month and we reiterate our forecast that house prices will rise by 7% in 2021, led by Sydney. Across the eight capital cities, house prices rose by 0.4% m/m in October. …
2nd November 2020
Inflation holding up better than expected The 1.6% q/q jump in consumer prices in Q3 was largely due to the reversal of the government’s free childcare policy and on its own tells us very little about the broader inflation picture. More importantly, …
30th October 2020
As restrictions have been lifted in both countries, activity has rebounded. Admittedly, the second draconian lockdown in Victoria will hold back the recovery in GDP in Australia in Q3 and Q4. But we expect the pace of recovery to pick up in the first half …
29th October 2020
Underlying inflation to remain subdued The surge in quarterly inflation in Q3 only unwound some of the weakness in Q2 and we still expect underlying inflation to remain weak for years to come. The 1.6% q/q rise in consumer prices in Q3 was the largest …
28th October 2020
Cash rate target, three-yield target and TFF interest rate to be lowered to 0.10% Interest rate on Exchange Settlement balances to remain at 0.10% Quantitative easing is coming and the Bank may buy $150bn in government bonds The Reserve Bank of Australia …
Minutes reiterate dovish message The minutes of the RBA’s meeting on 6 th October largely sent the same message as Governor Lowe’s speech a week alter. However, there are two points worth highlighting. First, the Board discussed lowering the targets for …
23rd October 2020
Inflation to ease further in the months ahead The further easing in headline and underlying inflation in Q3 are consistent with our view that weak inflation will prompt the RBNZ to cut rates into negative territory next year. Prices rose by 0.7%q/q in Q3, …
The RBA’s assets will rise further over the coming months as banks draw down funding under the TFF. But so will the assets of other central banks. If the Bank wanted to catch up with the advanced economies’ most expansionary central banks, it would need …
21st October 2020
RBA doubles down on inflation commitment RBA Governor Phillip Lowe gave a speech this week outlining how the Bank can deliver more easing. One change he unveiled was to the RBA’s forward guidance. In recent meetings, the Bank has said that it won’t raise …
16th October 2020
Overview - Australia and New Zealand have had far greater success in containing the virus than most other large advanced economies. Coupled with huge fiscal support, that means that the recovery in economic activity could surprise to the upside next year. …
15th October 2020
Fall in employment unlikely to last The drop in employment in September was largely due to weakness in Victoria. As restrictions ease there, we expect the unemployment rate to fall again in the coming months. The 29,500 fall in employment in September was …
Big budget spend up Josh Frydenberg unveiled the 2020/21 Budget on Tuesday announcing nearly $100bn of additional stimulus measures. Of particular note, the Budget brought forward stage 2 of the tax cuts to June 2020 (to be back-dated), introduced a 100% …
9th October 2020
We estimate that the income tax cuts and other stimulus measures unveiled in today’s Budget will provide fiscal support of around 2.5% of GDP in 2021/22. That won’t prevent a major tightening in fiscal policy as the huge support provided during the …
6th October 2020
The RBA kept policy settings unchanged today but signaled that more stimulus is forthcoming. We now expect the Bank to cut the cash rate target, the 3-year yield target and the interest rate on the term funding facility to 0.1% next month. We suspect the …
Trade was probably a drag on growth in Q3 The trade balance narrowed again in August and we think that trade was probably a drag on growth in the third quarter. The fall in the trade balance from $4652mn in July to $2643mn in August was much weaker than …
China’s recovery boosting Australian fortunes In his note last week our chief economist Neil Shearing explained why the recovery in China has not boosted growth in many other economies. However, Australia is one of the few countries that has benefitted. …
2nd October 2020
Housing downturn approaching its trough The housing downturn continued its run in Sydney and Melbourne in September, but prices rose again in the other six capital cities and we think nationwide prices will reach a trough by the end of this year before …
1st October 2020
The surge in case numbers due to the second wave in Melbourne has been brought under control with new daily cases falling back towards zero. Heavy restrictions on activity still remain in place in Melbourne, although they have been eased for rural …
30th September 2020
Bank coming round to our view that wage growth and inflation will remain soft Cash rate target, three-yield target and TFF interest rate to be lowered to 0.10% Additional bond purchases to lower long-term yields also on the cards The Reserve Bank of …
29th September 2020
Better than expected in Victoria Recent data show that the draconian lockdown in Victoria that forced all non-essential business to shut at the start of August had a much smaller impact on activity than we had anticipated. We learnt last week that hours …
25th September 2020
The experience from second virus waves in Australia, New Zealand and Japan is that consumer spending falls even if governments don’t impose major restrictions. However, there are three key reasons why second waves may be less damaging to economic activity …
The Reserve Bank of New Zealand (RBNZ) continued to set the stage for negative rates today and we think the OCR will be cut into negative territory early next year. As expected, the Bank did not adjust the overnight cash rate (OCR) or its asset purchase …
23rd September 2020
The improvement in the labour market, lower borrowing costs and a turnaround in leading indicators all suggest that the housing downturn will soon come to an end. We now expect house prices across the eight capital cities to fall by just 3% from their …
22nd September 2020
NZ economy should rebound quickly Production GDP in New Zealand fell by 12.2% q/q in Q2 due to the strict lockdown which restricted most activity in April. That compares to the smaller 7.0% fall in GDP in Australia. That makes sense given that the initial …
18th September 2020
RBNZ pushing QE to its limits Second wave delays the economic recovery The RBNZ set to launch negative rates next year The RBNZ is reaching the limits of its asset purchase program. We therefore doubt the Bank will make any significant policy changes at …
17th September 2020
Rebound in employment has further to run August’s labour market data were much stronger than most had anticipated and we think that employment will continue to rise . The 111,000 rise in employment in August was much stronger than the Bloomberg median of …
Growth will rebound strongly in Q3 New Zealand’s GDP fell by 12.2% q/q in Q2 but while the second lockdown should weigh on the recovery in Q3 we still expect growth to rebound by more than 10% in Q3. The 12.2% q/q plunge in GDP was broadly in line with …
Inflation has been close to the midpoint of the RBA’s 2-3% inflation target since its launch in the 1990s, but this has come at the expense of soaring house prices and household debt. Australia’s experience underlines that central banks need better tools …
15th September 2020
Melbourne lockdown extended Victorian Premier Daniel Andrews confirmed this week that the state would remain in the current lockdown until at least the end of September, in line with our own expectations. (See here .) But the path out of lockdown he …
11th September 2020
