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House prices continue to temper their gains The housing rebound that began early last year continued to lose momentum in April. With affordability likely to remain stretched for the foreseeable future, house price growth will only ease further in the …
1st May 2024
The different treatment of prices collected annually is a key reason why the quarterly CPI measure rose much faster last quarter than the Monthly CPI Indicator had indicated. While it’s possible to correct some of the shortfalls of the MCI, it can’t be …
29th April 2024
Weak capital spending is a key reason for Australia’s poor productivity performance. While investment growth has been strong recently, we think it will take until the second half of this decade before the level of capital spending is high enough to return …
15th April 2024
The Reserve Bank of New Zealand didn’t drop any hints as to when it might pivot to looser policy at its meeting today. However, as inflation risks recede, we still expect the Bank to start cutting rates by August. The RBNZ’s decision to leave rates on …
10th April 2024
We expect the RBNZ to hold rates steady at its meeting next Wednesday. But with the economy in a deep slump and inflation clearly on the way down, the Committee is likely to tone down its tightening bias. As inflation risks continue to recede, we expect …
3rd April 2024
Slowdown in house price growth has further to run Australian house prices continued to pare their gains last month. And a further loss of momentum appears likely in the near term, especially given that the RBA is unlikely to come to the housing market’s …
2nd April 2024
The RBA sounded a touch less hawkish at today’s meeting and we think the Bank will start to lower interest rates by August. The Bank’s decision to keep the cash rate unchanged at 4.35% was correctly anticipated by all analysts polled by Reuters, ourselves …
19th March 2024
Housing market will cool further still Australian house price gains eased only slightly in February. However, with home sales now softening noticeably, we suspect that the momentum behind the housing rebound will soon fade. Allowing for seasonal swings, …
1st March 2024
The Reserve Bank of New Zealand handed down another hawkish hold at its meeting today. However, with inflation on track to return to its 1-3% target by mid-year, we still expect the Bank to start cutting rates by August. The RBNZ’s decision to leave its …
28th February 2024
Non-labour input costs are now moderating which should soon result in a more rapid slowdown in consumer price inflation than most are anticipating. In a recent Bulletin article, the RBA argued that “large cost increases over recent years are still flowing …
15th February 2024
With activity and inflation both softer than it had expected a few months ago, the RBNZ will likely stay put at its meeting at the end of the month. However, with a still-tight labour market fuelling uncertainty about domestically-sourced price pressures, …
14th February 2024
With the Reserve Bank of Australia still striking a hawkish tone at its meeting today, we’re pushing back our forecast for the Bank’s first rate cut from May. But we still think that incoming data will show enough of a drop in inflation alongside …
6th February 2024
Leading indicators still point to weaker house price growth Although house price gains remained firm in January, we still expect them to soften in the months ahead. While rate cuts are on the horizon, they will do little to improve homebuying capacity. In …
1st February 2024
The Reserve Bank of New Zealand launched a consultation on changes to its macroprudential framework last week. In our view, the proposed tweaks are unlikely to have a meaningful impact on the housing market one way or the other. The big picture continues …
30th January 2024
While Australian households are as indebted as ever and mortgage payments have hit fresh record-highs, lending standards continue to be sound, loan defaults remain subdued and banks are well capitalised. Accordingly, there’s no compelling case to tighten …
23rd January 2024
Australian household finances are in better shape than the plunge in the household savings rate would suggest. While we still think that GDP growth will slow more sharply than expected over the coming quarters, there’s a clear risk that households will …
4th January 2024
Housing market still set to cool Australia’s housing market showed signs of life in December. However, we still think an affordability crunch will temper house price gains in the months ahead. Allowing for seasonal swings, house prices across the eight …
2nd January 2024
House prices will limp along in 2024 Although house prices in Melbourne have started to fall anew, we doubt that they are the canary in the coal mine. A persistent shortfall in housing supply should ensure that house prices across most of Australia keep …
21st December 2023
While the income tax cuts due next year are widely seen as necessary to reverse bracket creep, the income tax burden isn’t particularly onerous by historical standards. However, Australia taxes income far more heavily than most other advanced economies …
20th December 2023
Australian households have built up more excess savings than those in other large advanced economies and we estimate that those savings will only be depleted by the end of 2025. Even so, we still expect consumption growth to keep disappointing. Real …
18th December 2023
Today’s budget update showed that the government now expects a balanced budget in 2023/24, as opposed to the modest deficit it had projected a few months ago. With revenue likely to outperform the government’s conservative assumptions, we think an …
13th December 2023
We doubt that the removal of the RBNZ’s employment objective would make much difference to economic outcomes, but forcing the Bank to achieve its inflation target within too short a period of time could cause unnecessary swings in output when inflation is …
11th December 2023
Given the high bar for further rate hikes, we’re more confident than ever that the Reserve Bank of Australia is done tightening policy. That said, there is a good chance that the cash rate will remain at its cyclical peak for longer than we currently …
5th December 2023
In this Global Economics Update , we describe eight of the biggest risks to our economic forecasts for 2024. The unusual nature of this cycle and uncertainties surrounding the transmission of monetary policy mean that the biggest risks relate to central …
30th November 2023
While subdued capital spending has contributed to the slump in productivity, the recent plunge in the capital/labour ratio can only partly be explained by the surge in net migration. It is now a well-documented fact that Australia’s labour productivity …
23rd November 2023
As had been widely expected, the RBA handed down a 25bp rate hike at its meeting today. With the cash rate now at 4.35%, we believe the Bank’s tightening cycle is over. If we’re right that the Australian economy will soon take a turn for the worse, rate …
7th November 2023
There are growing indications that household finances are coming under pressure as mortgagors struggle with rising debt-servicing costs. Although households benefit from substantial liquidity buffers, we suspect they won’t be rushing to run those down to …
16th October 2023
Most of the recent surge in net migration has been driven by the increased arrival of foreign students, who generally spend less, work fewer hours and demand less housing than the average Australian. On balance though, the surge in net migration probably …
12th October 2023
The sell-off in bond markets has taken a breather today, helped in part by softer data on the US labour market. However, the scale of the moves over the past week has invoked comparisons to previous financial crises that have been caused by sharp moves in …
4th October 2023
With its assessment of the balance of risks broadly unchanged, the Reserve Bank of New Zealand left rates on hold at its meeting today. Although the Bank will likely retain its tightening bias, we continue to believe that the official cash rate is at its …
While new RBA Governor Michelle Bullock didn’t spring any surprises at her first interest rate decision today, we think that the Bank will hike interest rates to a peak of 4.35% at its next meeting in November . However, we expect the RBA to pivot towards …
3rd October 2023
The RBA retained its tightening bias when it kept interest rates unchanged at 4.10% today. However, we think the Bank’s next move will be a rate cut, perhaps as early as the first quarter of next year . The Bank’s decision to keep the cash rate unchanged …
5th September 2023
The cyclically-sensitive antipodean currencies have had a tough year so far, and a fair bit of bad news already appears priced in to both the aussie and the kiwi. Nonetheless, we don’t think their recent rebound will prove the start of a sustained …
1st September 2023
With inflation cooling, the government may soon become more willing to support the economy, but we doubt it will provide as much support as it did during the global financial crisis. However, net trade may not provide as much support as during previous …
21st August 2023
The Reserve Bank of New Zealand left rates on hold, as was widely expected. However, the minutes of today’s meeting were unambiguously on the hawkish side, with the Committee indicating the need to keep policy settings restrictive for a protracted period. …
16th August 2023
We previously argued that stretched housing affordability and a looser labour market would result in a second leg down in house prices. However, with the housing market going from strength to strength on the back of resurgent population growth, we now …
7th August 2023
The Reserve Bank of Australia left rates unchanged at 4.10% for the second consecutive month. And while the Board continued to strike some hawkish notes, there is a good chance that its tightening cycle is already over. The RBA’s decision flew in the face …
1st August 2023
Provisional data from the Australian Bureau of Statistics suggest that consumer spending slumped in Q2, as households sharply pared back discretionary expenditure. Faced with falling real incomes and depleted savings buffers, we think households will only …
19th July 2023
The decision by the Reserve Bank of New Zealand to leave rates on hold at 5.50% came as a surprise to no one. Indeed, the Committee noted that monetary policy in New Zealand had turned restrictive far sooner than in many other economies. Although the Bank …
12th July 2023
Press reports suggest that Department of Finance Secretary Jenny Wilkinson is the front-runner to become the next Governor of the Reserve Bank of Australia, though Treasury Secretary Steven Kennedy and RBA Deputy Governor Michelle Bullock are in the …
5th July 2023
The Reserve Bank of Australia’s decision to keep rates unchanged at 4.10% today suggests that interest rates may not rise all the way to 4.85% as we expect, but further tightening still seems likely . Today’s decision was a very close call: 15 economists …
4th July 2023
The Reserve Bank of Australia is considering actively selling its bond holdings rather than merely letting them shrink gradually via bond redemptions. The main motivation seems to be to reduce interest rate risk on its balance sheet rather than to tighten …
21st June 2023
One reason for the slump in productivity is that the recent surge in working hours is producing diminishing returns. And we suspect that disruptions caused by the pandemic prevented firms from stepping up business investment in response to record capacity …
13th June 2023
In response to the hawkish shift by RBA Governor Lowe and the further acceleration in unit labour cost growth, we now expect the Bank to lift the cash rate to 4.85% by September. That aggressive monetary tightening will push the Australian economy into a …
7th June 2023
The Reserve Bank of Australia lifted the cash rate by 25bp today and the hawkish tone of the statement suggests that the risks to our terminal rate forecast of 4.35% are tilted to the upside. Indeed, we still think that the Bank will cut interest rates …
6th June 2023
The decision by the Reserve Bank of New Zealand to lift its official cash rate by 25bp, to 5.50%, was in line with what most had anticipated. However, with the Bank sounding more dovish than it has in the recent past, we think its hiking cycle is now …
24th May 2023
The RBA’s balance sheet has barely shrunk since it decided to stop reinvesting the proceeds from maturing bonds. While pressing ahead with quantitative tightening would make it easier for the Bank to engage in quantitative easing during future downturns, …
16th May 2023
The 2023/24 Budget unveiled yesterday by Treasurer Jim Chalmers was something of a mixed bag. On the one hand, the modest spending measures proposed by the government will not break the bank, thanks in large part to the government’s commodity-driven tax …
10th May 2023
The Reserve Bank of Australia retained its tightening bias when it lifted the cash rate by 25bp at today’s meeting, but we suspect that it won’t raise interest rates any further over the coming months . The Bank’s decision to lift the cash rate from 3.60% …
2nd May 2023
The recommendations by the RBA’s review panel unveiled today were broadly in line with what we had anticipated. While the 2-3% inflation target will be retained, sweeping changes to the Bank’s leadership structure are underway. And with a lot of the …
20th April 2023