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Lower unemployment rate should keep RBNZ on hold The decline in the unemployment rate to 4.0% in New Zealand all but ensures that the RBNZ will keep rates on hold in February. And given that we forecast employment growth to rise in 2020 , we think the …
4th February 2020
The Reserve Bank of Australia (RBA) sounded cautious when it left rates on hold today and we think persistent weakness in the underlying economy will force the Bank to cut interest rates to 0.5% in April. The decision to leave rates on hold at 0.75% was …
Even though house prices in Sydney and Melbourne plunged during the housing downturn, the house price to earnings ratio in both cities is still 40% higher than it was a decade ago. However, we think that housing is only moderately overvalued at the moment …
3rd February 2020
House price growth may be approaching a peak House prices continued to surge in January. But our sales to new listings ratio suggests that price growth may be approaching a peak. That’s consistent with our forecast for price growth to moderate this year. …
A combination of optimism about the prospect of a US-China trade deal and some better than expected economic data temporarily halted the decline in the Australian dollar towards the end of last year. Even so, the services balance surged into surplus in Q4 …
31st January 2020
Housing costs will boost inflation this year Headline inflation edged higher in Australia from 1.7% in Q3 to 1.8% in Q4. But trimmed mean and weighted median inflation remained stable and core inflation (excluding food and energy) declined from 1.9% to …
Falling unemployment allows Bank to keep rates unchanged in February But GDP growth set to fall short of expectations and wage growth still soft More easing will be needed to meet the inflation target The further fall in the unemployment rate in December …
29th January 2020
Underlying inflation should fall further below target in 2020 The pick-up in headline inflation in Q4 should be the final nail in the coffin for hopes of a February rate cut. Even so, weak economic activity should force the bank to cut rates again before …
Upbeat labour market may delay rate cut The labour market has remained solid despite subdued economic activity. Employment rose by 28,900 in December, far exceeding analysts’ expectation of a mere 10,000 pick-up. The unemployment rate fell for the second …
24th January 2020
Strong inflation should mark the end of the RBNZ’s easing cycle The strong rise in headline inflation from 1.5% in Q3 to 1.9% in Q4 should be enough to prevent the RBNZ cutting rates in February. And given that we now expect a strengthening in economic …
23rd January 2020
Fall in unemployment gives RBA breathing space The fall in the unemployment rate to a nine-month low shows that monetary and fiscal stimulus is starting to work and reduces the pressure on the RBA to cut interest rates. The 28,900 rise in employment was …
We doubt that the bushfire crisis will prompt a major shift in the Australian government’s attitude towards the mining industry. But the sector’s importance is set to decline either way as mining investment has slumped and a structural slowdown is …
21st January 2020
Trade deal not great news for Australia Phase one of the US-China trade deal was signed this week which marks an end to the first phase of the trade war. (See here for detailed coverage.) It removes the downside risk of imminent further escalation which …
17th January 2020
Overview – Australia’s house prices may rise by 8% this year but consumers are still reeling under high debt loads. With growth set to fall short of potential, we still expect unemployment to rise further which should weigh on wage growth and underlying …
16th January 2020
Banks’ housing lending standards remain tight. But this hasn’t prevented housing arrears from climbing to fresh highs as household balance sheets are stretched. And given that we expect the unemployment rate to creep higher and income growth to remain …
15th January 2020
Net trade probably bolstered growth in Q4 External trade data for November released this week showed a sharp improvement in the trade balance supported by a rise in export values while import values declined. The rise in export values is particularly …
10th January 2020
Surge in retail sales unlikely to herald spending spree The strongest rise in retail sales in two years could be a sign that tax refunds and interest rate cuts are finally boosting spending. But with consumer confidence falling to fresh lows, we doubt it …
Trade should provide a much-needed boost to growth in Q4 The sharp rise in the trade balance in November is consistent with the contribution from net exports to GDP growth rising sharply in the fourth quarter but the weakness in imports suggests domestic …
9th January 2020
The deadly bushfires that are ravaging Australia are first and foremost a human tragedy. But there are economic effects to consider, too. We suspect that the impact on consumption and working hours will be negligible, while firefighters working longer …
7th January 2020
Housing market going from strength to strength With bushfires still roaring across large parts of the country, the economic data are naturally taking a backseat. This week we learned that house price growth slowed from 1.9% m/m in November to 1.4% m/m in …
3rd January 2020
House price growth to remain strong for now With home sales climbing to a fresh high, our sales to listings ratio now suggests that house prices will soon be rising by around 10% per annum. House price growth across the eight capital cities slowed from …
2nd January 2020
Australia’s labour market broadly stable The minutes of the RBA’s December meeting noted that “it would be important to reassess the economic outlook in February 2020, when the Bank would prepare updated forecasts”. The Board noted that “it would be …
20th December 2019
Annual GDP growth in Australia has probably bottomed out already but we expect growth to remain below potential in 2020. As such, jobs growth will probably not be strong enough to absorb the expansion in the labour force and we expect Australia’s …
19th December 2019
Unemployment rate to rise further The renewed drop in the unemployment rate in November reduces the pressure on the RBA to cut interest rates but we still expect the labour market to soften furthe r. The 39,900 jump in employment in November was stronger …
Rebound in growth unlikely to last The rebound in GDP growth in New Zealand in the third quarter is unlikely to be sustained as soft consumer and business confidence limit the pick-up in growth. Production GDP growth surged from a downwardly revised 0.1% …
Australia’s government pledged to increase spending in today’s Budget update. And its pessimistic forecasts for nominal GDP growth suggest that tax revenue may continue to surprise on the upside, leaving scope for additional fiscal stimulus in the …
16th December 2019
Business and consumer confidence both drop The survey data released this week support our view that the Australian economy will struggle to gain momentum next year. Business confidence dropped from 2.0 to 0.1 in November and is only fractionally above the …
13th December 2019
We think that GDP growth in both Australia and New Zealand will fall short of expectations, forcing both the RBNZ and the RBA to cut interest rates more sharply than most expect. The consensus is that both the Kiwi and the Aussie dollar will strengthen …
10th December 2019
Household spending remains the Achilles heel The RBA kept interest rates unchanged at the meeting that occurred one day before the release of the Q3 GDP data and reiterated that the economy had reached a “gentle turning point”. At first glance, the …
6th December 2019
The Reserve Bank of New Zealand’s decision to leave mortgage lending restrictions unchanged and tighten capital requirements means that lending and house prices are unlikely to surge in 2020. As such, concerns about financial stability won’t prevent the …
5th December 2019
Net trade the bright spot as consumption set to remain subdued The stagnation in retail sales in October suggests that consumption growth remained sluggish in the fourth quarter. And while net exports should continue to support GDP growth, the weakness in …
Growth will continue to disappoint GDP growth fell short of expectations in the third quarter and we think it will remain much weaker than most anticipate. As such, we reiterate our view that the RBA will cut interest rates in February and April and …
4th December 2019
The RBA turned more optimistic when it kept rates unchanged today but we think that further stimulus will be required before long. We reiterate our long-held view that the Bank will cut rates to 0.25% next year and will launch quantitative easing in the …
3rd December 2019
House price growth to ease in 2020 Our sales to new listings ratio suggests that house price growth will moderate before long . Even so given the sharp increase in recent months, we now expect prices to rise by around 7% in 2020 and 5% in 2021. The 2.0% …
2nd December 2019
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
