Filtered by Subscriptions: Australia & New Zealand Economics Use setting Australia & New Zealand Economics
Higher bar for QE will be reached before long In a much-anticipated speech this week Reserve Bank of Australia Governor Lowe laid out the Bank’s thinking around unconventional monetary policy. For the most part, the speech confirmed our existing views. …
29th November 2019
Private investment to fall further The renewed decline in machinery and equipment investment in the third quarter is consistent with the sharpest quarterly fall in private investment in three years. And we expect private investment to remain a drag on …
28th November 2019
Economic data have been weak but RBA will wait for Q3 GDP data before cutting Subdued growth and inflation will force the RBA to cut rates to the 0.25% floor in 2020 Governor Lowe set a higher bar for QE but we expect that bar to be reached next year The …
27th November 2019
The recent weakness in productivity is largely cyclical and reflects the slump in homebuilding. While Australia probably won’t be a frontrunner in the digital revolution, we expect labour productivity growth to pick up from 0.8% over the past decade to …
25th November 2019
Government stimulus underwhelming The government appear to have had a change of heart with PM Scott Morrison this week promising additional stimulus in the Mid-Year Economic and Fiscal Outlook (MYEFO), which is usually released in mid-December. The …
22nd November 2019
The decline in bond yields in Australia and New Zealand throughout 2019 has paused in recent months following optimism about a potential trade deal between the US and China and hawkish language from the Fed. But we think that bond yields in both countries …
21st November 2019
The recent surge in stock buybacks has largely been driven by mining and financial firms and therefore can’t explain the weakness in non-mining investment. Non-mining profit growth should rebound a little over coming quarters as domestic demand picks up a …
18th November 2019
Spare capacity in the labour market to rise We wouldn’t read too much into October’s largest fall in employment in three years. The data are volatile and a renewed rise in November is likely. Even so, the labour market is clearly deteriorating. The …
15th November 2019
Unemployment rate to rise further The sharp fall in employment will be causing concern for the RBA and we think the unemployment rate has further to rise in the coming months. The sharp 19,000 fall in employment in October was the largest decline in three …
14th November 2019
The Reserve Bank of New Zealand sounded cautious when it left rates on hold today and we believe that a deterioration in the economy will force the Bank to 0.5% by early next year. We were one of the five forecasters polled by Bloomberg who correctly …
13th November 2019
Wage growth will slow to 2.0% soon The slowdown in wage growth in the third quarter doesn’t come as a complete surprise to the RBA and we still expect the Bank to wait until February before cutting rates again. The 0.5% quarterly rise in the wage price …
GDP growth to remain subdued This week we got a clear indication there has not been a strong rebound in economic growth in the third quarter as policymakers were hoping. Admittedly, before the release of the September trade data we had pencilled in a 0.4 …
8th November 2019
By signalling that inflation will remain below the lower end of its 2-3% target band for the foreseeable future, the RBA signalled that further easing is on the cards. Our view remains that the Bank will cut rates to 0.25% and launch quantitative easing …
Net trade should support trade over coming quarters Net trade probably didn’t bolster GDP growth in the third quarter which adds to the evidence that GDP growth slowed in Q3. And weaker capital goods imports suggest that the slump in business investment …
7th November 2019
Economic data has been in line with RBNZ forecasts… …so we think the Bank will hold for now. But sustained economic weakness means rates will be cut to 0.5% next year. The economic data have been better than the Bank anticipated in their last set of …
6th November 2019
Rise in the unemployment rate not a big deal for the RBNZ The rise in the unemployment rate to 4.2% in Q3 only reverses the decline in Q2 so we doubt the RBNZ will be too worried at this stage. The 0.2% q/q increase in employment was lower than the …
5th November 2019
The RBA reiterated its view that the economy had reached a gentle turning point when it left rates unchanged today. However, we think that the Bank’s forecasts for GDP growth and the labour market remain too optimistic and we expect the Bank to cut rates …
Our central scenario is that cutting interest rates to 0.5% will be enough to weather the economic slowdown in 2020. And if required, fiscal policy and macroprudential tools could be used to help stimulate demand. However, if the global economy slows more …
Consumption to remain subdued The decline in real retail sales in the third quarter suggests that consumption growth remained subdued. And with the bulk of the tax refunds already paid, the outlook for the fourth quarter isn’t great either. The 0.2% m/m …
4th November 2019
Goods inflation climbs to 10-year high The inflation data released this week were stronger than we had anticipated. Core market services inflation duly weakened from 1.3% to 1.2% as the looser labour market probably restrained wage growth. But core market …
1st November 2019
House price growth to ease in 2020 Our sales to new listings ratio suggests that house prices will continue to surge in the coming months before moderating in the new year . We expect prices to rise by 5% in 2020 and 2021. The 1.2% rise in CoreLogic’s new …
In its latest World Economic Outlook, the IMF predicted Australia’s economy to expand by 1.7% in 2019 and by 2.3% in 2020. While the 2019 forecast is consistent with our own expectations, their forecasts assume a larger bounce in GDP growth next year than …
31st October 2019
Despite rebound in house prices, GDP growth set to remain subdued Rising unemployment will push underlying inflation further below 2% We now expect the Bank to cut rates to 0.25% and launch quantitative easing next year Falling unemployment and steady …
30th October 2019
Underlying inflation to ease further below RBA’s target While inflation edged up in Q3 we think the weakness in economic activity will cause it to fall again before long, prompting further easing by the RBA. Consumer prices increased by 0.5% q/q in Q3, in …
We estimate that the participation rate will rise by around 0.35ppt per annum over the next couple of years. That means that the economy needs to create around 300,000 additional jobs per annum to absorb the expansion in the labour force from a higher …
29th October 2019
Australia could have its cake and eat it too The new secretary to the Australian Treasury, Steven Kennedy, has pushed the RBA’s hopes for fiscal stimulus slightly further out of reach by endorsing the government’s current fiscal policy settings. He said …
25th October 2019
We estimate that a fiscal stimulus equivalent to 1.5% of GDP would still be consistent with maintaining Australia’s AAA-rating. Unfortunately, fiscal policy probably won’t come to the rescue, leaving the onus to support demand on the RBA. The slowdown in …
23rd October 2019
Underlying inflation was moored well below the lower end of the RBA’s 2-3% target band even as the housing market was booming and the labour market was tightening. With the unemployment rate set to rise to 5.5% next year and interest rate cuts …
21st October 2019
Underlying inflation set to weaken further The Reserve Bank of Australia will have breathed a sigh of relief after the unemployment rate dipped from 5.3% to 5.2% in September despite the fact that job growth slowed. And the minutes of the Bank’s October …
18th October 2019
Unemployment set to rise again before long The RBA will breathe a sigh of relief after the unemployment rate declined in September. But we think it won’t be long before unemployment starts to rise again, forcing the RBA to provide additional stimulus. The …
17th October 2019
Easing headline inflation not yet a concern for the RBNZ The decline in headline inflation from 1.7% in Q2 to 1.5% in Q3 is unlikely to concern the RBNZ as it was still above their forecast in August. But we think subdued activity will mean that …
16th October 2019
Overview – The end of the housing downturn has reduced the risk of a recession and we expect GDP growth in Australia to edge up from 1.7% this year to 2.0% in 2020. However, that’s still well below potential and we expect the unemployment rate to climb …
15th October 2019
Waning confidence Business and consumer confidence data released this week provided yet another signal that economic activity in Australia is set to remain weak in the coming quarters. Following the May election, business confidence surged, probably …
11th October 2019
We now expect growth in New Zealand to ease from 2.2% in 2019 to 1.5% in 2020. Along with a rising unemployment rate, weak economic activity will prompt the RBNZ to cut rates twice next year. Growth in New Zealand has gradually eased over 2019 as weak …
9th October 2019
Once interest rates approach their lower bound, the RBA could provide long-term loans to banks and link their interest rate to the amount of new lending those banks undertake. However, if the Bank decided more stimulus was needed, we still think that …
7th October 2019
Stimulus running into diminishing returns The RBA cut interest rates to 0.75% on Tuesday as most had anticipated. It put more emphasis than usual on its intention to achieve full employment. In June, the Bank revised down its estimate of the unemployment …
4th October 2019
Tax cuts not having much of an effect so more stimulus is needed Retail sales growth remained subdued in August despite the government’s tax cuts which suggests that economic activity did not recover strongly in the second half of 2019. The 0.4% m/m rise …
Trade will only provide a modest boost to growth in Q3 The narrowing in the trade surplus in August was mostly driven by a decline in export prices so we doubt that net trade will be a drag on GDP growth in Q3. Even so, we estimate that the contribution …
3rd October 2019
We still believe that the unemployment rate would have to fall to 4.0% to meet the RBA’s definition of full employment. With the actual unemployment rate now at 5.3% and rising, that means that the RBA has more work to do. We reiterate our forecast that …
2nd October 2019
The RBA cut interest rates to 0.75% as widely anticipated and we think it will lower rates to 0.5% by the end of the year. Rates approaching the zero lower bound will inevitably invite speculation about quantitative easing but the RBA’s forceful response …
1st October 2019
House prices recovery to continue The 10% annualised rise in house prices in September is unsustainable in light of sluggish income growth. We expect prices to rise by a slower 5% in 2020 and 2021. The 1.1% m/m rise in house prices in the eight capital …
Economic growth has continued to ease in both countries in the first half of 2019. In Australia, GDP growth eased to 1.4% y/y in Q2. And while the government’s tax cuts may mean that consumption supports a pick-up in growth in the coming months, the …
30th September 2019
Interest rates cut around the world The Reserve Bank of New Zealand kept interest rates on hold at 1.0% this week following the dramatic 50 basis point cut in August. The decision to leave rates on hold was in line with market expectations and the analyst …
27th September 2019
The Reserve Bank of New Zealand sounded more comfortable with its position when it left rates on hold today but we still think the Bank will cut rates to 0.75% by early next year. The decision to leave rates unchanged at 1.0% following the dramatic 50 …
25th September 2019
Labour market still set to ease further But outlook for GDP growth has improved as house prices have started to rebound Forceful policy response lowers likelihood of unconventional policy being deployed The continued rise in the unemployment rate will …
24th September 2019
Close but no cigar This week the government revealed that in the 2018/19 fiscal year the budget remained in deficit. The deficit was just $690 mn, rounding to 0.0% of GDP, much smaller than the $4.2 bn or 0.2% of GDP deficit that was forecast in the April …
20th September 2019
Economic activity in Q2 was in line with RBNZ forecasts… …so we think the Bank will hold for now. But sustained economic weakness means rates will be cut to 0.75% by early next year. Following the dramatic 50 basis point cut in August, we suspect the …
19th September 2019
Higher unemployment rate puts pressure on RBA The unemployment rate rose to 5.3% in August and we think a slowing in employment growth should drive the unemployment rate even higher, to 5.4% by the end of the year. Employment rose by a solid 34,700 in …
Growth to remain soft in 2019 Following the slowing in annual GDP growth in Q2, we suspect that economic activity will remain subdued throughout 2019 as soft business conditions and weak global growth weigh on growth. Production GDP growth eased to 0.5% …
Stimulus will overcome low confidence This week’s consumer confidence and business confidence releases were disappointing as both dropped in the latest reading. (See Chart 1.) At first glance, that’s a worrying sign given the support from the RBA’s tax …
13th September 2019
