Filtered by Subscriptions: Australia & New Zealand Economics Use setting Australia & New Zealand Economics
Full employment will drive RBA to hike rates The further decline in the Australian unemployment rate takes the labour market closer to full employment, setting the RBA up to hike rates in June. The 77,400 rise in employment in February was well above the …
17th March 2022
Strong rebound to persist in 2022 The rebound in GDP at the end of last year was larger than the RBNZ was anticipating, which should keep the Bank on its hiking track. And we expect the rebound to have continued in the current quarter despite New …
16th March 2022
We now expect inflation to reach a 21-year high of 5.2% in Q3 as fuel prices surge and firms pass on higher raw material costs to consumers. With the labour market nearing full employment and inflation expectations picking up, we reiterate our long-held …
Governor becoming worried about inflation RBA Governor Philip Lowe reiterated in a speech this week that the Bank can afford to be patient as Australian inflation is not as high as in other countries. However, the Governor highlighted that the surge in …
11th March 2022
Efforts by overseas governments to combat climate change will result in mining falling from 10% of GDP last year to 5% by 2050. Rising exports of “green” metals are unlikely to offset falling coal and iron ore exports and slower growth in liquefied …
9th March 2022
RBA Governor Lowe noted in a recent speech that the Bank no longer has specific criteria for deciding whether inflation is sustainably in the target range. But he highlighted that along with the actual rate of inflation and the outlook, the breadth of …
7th March 2022
GDP will return to pre-virus trend by mid-year The 3.4% q/q rise in Q4 GDP left output just 1.4% below its pre-virus trend, but the recovery remains very lopsided. GDP outside the heaviest-hit sectors has risen by 4.5% since Q4 2019 even as output in …
4th March 2022
Output will return to pre-virus trend by middle of the year Q4’s jump in GDP brought output closer to its pre-virus trend and we think it will get there next quarter already. But with tighter monetary policy looming on the horizon, growth is set to slow …
2nd March 2022
The RBA still sounded dovish when it kept interest rates unchanged today. However, we suspect that another upside surprise in Q1 inflation will convince the Bank that tighter policy is needed even if wage growth remains modest and have pencilled in the …
1st March 2022
House prices probably won’t start falling just yet Leading indicators remain consistent with solid house price growth, but if the recent moderation turns into an outright slump, the RBA will not hike rates as aggressively as we anticipate. The 0.1% m/m …
Consumption kept rising throughout Omicron wave The rebound in retail sales in January suggests that the Omicron wave had a much smaller impact than many had feared and consumption will probably keep rising this quarte r. The 1.8% m/m rise in retail sales …
28th February 2022
Soaring energy prices not a big drag on Australia The conflict in Ukraine is likely to keep commodity prices elevated in the near term. But in a worst-case scenario, the price of Brent crude oil could settle at US$120-140bbl for three to six months. And …
25th February 2022
Investment to rebound in earnest in the years ahead We estimate that private investment rose by a modest 0.7% q/q in Q4, but firms’ expectations of future capital expenditure suggest investment will strengthen before long. The private capital expenditure …
24th February 2022
Inflation set to surge further; first rate hike will come in June. High household debt is a concern, but high savings rate means households have buffers. We expect rates to reach 1.75% by mid-2023. We now expect the RBA to start hiking in June in response …
23rd February 2022
The RBNZ sounded hawkish when it lifted rates today suggesting the OCR will rise further than we had previously anticipated. But a more aggressive hiking cycle will be an even bigger headwind to the economy next year, so we still think the RBNZ will …
Wage growth to approach 3% by year-end The Q4 wage data won’t alter the RBA’s view that inflation isn’t sustainably within its 2-3% target band yet, but we still expect the Bank to start hiking in June as inflation surprises to the upside. The 0.7% q/q …
No budget repair before interest rates rise Treasury Secretary Steven Kennedy used his opening statement to the Senate Economics Committee this week to argue that fiscal policy should remain accommodative until interest rates have been normalised. …
18th February 2022
Unemployment rate to resume its descent before long The further rise in Australian employment despite the Omicron outbreak in January highlights the resilience of the Australian labour market and supports our forecast that the RBA will hike rates in June. …
17th February 2022
Strong data will keep the RBNZ’s hiking cycle on track The Bank will hike rates to 2.0% by August But we think the Bank will eventually have to reverse course, cutting rates next year The New Zealand economy remained hot at the end of last year. And while …
16th February 2022
The sharp drop in the fertility rate during the pandemic has already started to reverse. And even if it is sustained, the government will be able to offset a slower natural increase with higher net migration. The upshot is Australia will remain one of the …
14th February 2022
Domestic tourism set to recover The conventional wisdom is that the complete reopening of the border from 21 st February will weigh on Australia’s economic activity. After all, in 2019 Australian tourists spent around $6bn (1% of GDP) more abroad than …
11th February 2022
Continued strength in underlying inflation and activity will prompt the Reserve Bank of Australia to start hiking rates in June. And we now expect the Bank to lift the cash rate to 1.75% by August next year. Further evidence that the Australian economy is …
10th February 2022
Governor Lowe coming around to rate hikes It’s striking that just six months ago RBA Governor Lowe stated that he couldn’t understand why markets were expecting rate hikes in 2022 or early 2023. But this week the Governor announced the RBA would end its …
4th February 2022
Drag from trade in Q4 won’t persist The fall in the trade balance in December is consistent with trade having been a sizable drag on growth at the end of last year. The 5.0% m/m rise in import values was much stronger than the 0.8% m/m rise in export …
3rd February 2022
Tight labour market will keep RBNZ hiking cycle going The further decline in the unemployment rate to a record low of 3.2% will keep the RBNZ on its hiking cycle in the months ahead. But we suspect the unemployment rate will rise again before long. The …
2nd February 2022
The RBA today ended its bond purchases, revised up its inflation forecasts and no longer signalled that wage growth needs to be “materially higher” to meet its inflation target on a sustained basis. We expect the first rate hike in August . The Bank’s …
1st February 2022
New Zealand’s inflation surged to a 30-year high of 5.9% in Q4. And while Australia’s 3.5% was much lower, it is well above the RBA’s 2-3% target band. Trimmed mean inflation is about one percentage lower, but business surveys suggest it will rise further …
28th January 2022
Underlying inflation set to surpass 3% The 1.0% q/q rise in trimmed mean consumer prices in Q4 was the largest since 2008 and lifted the annual rate to 2.6%. That marked the first time since 2014 that the RBA’s preferred measure of underlying inflation …
Surging inflation will keep RBNZ hiking cycle underway The persistent rise in inflation to the highest levels in 30 years will be worrying the RBNZ. That’s why we expect the Bank to hike aggressively in the first half of this year. Consumer prices rose …
26th January 2022
Trimmed mean inflation will probably climb above the upper end of the RBA’s 2-3% target band in Q1, which would add to the case for the RBA to start hiking rates in May. However, the RBA hasn’t changed its policy rate in an election month since it started …
Labour market tightening rapidly, inflation surging Omicron is disrupting activity but will only add to the upward pressure on prices RBA to end QE next week, start hiking in August The rapid tightening of the labour market coupled with the acceleration …
25th January 2022
Inflation above target mid-point sets stage for rate hikes this year The strong rise in underlying inflation at the end of last year means the RBA is all but certain to end its asset purchase scheme at its meeting next week. And with underlying inflation …
Labour market tightest since 2008 The 64,800 rise in Australian employment in December meant that the unemployment rate fell from 4.6% to 4.2%, the lowest rate since 2008. RBA Governor Lowe noted last year that if the economic data exceeded the Bank’s …
21st January 2022
Overview – Australia’s Omicron outbreak will hold back the recovery this quarter, but there are plenty of reasons why Australia will outperform New Zealand over the next couple of years. As the labour market has tightened more rapidly than we had …
20th January 2022
Tight labour market will support RBA to end QE The further decline in the Australian unemployment rate in December supports our forecast that the RBA will end its asset purchases in February. The 64,800 rise in employment in December was slightly above …
Economy running hot before Omicron The economic data released this week corroborates our view that GDP surpassed its pre-lockdown level in Q4. For one thing, retail sales values jumped by 7.3% m/m in November and were 6% above their previous peak a year …
14th January 2022
While the strength in New Zealand’s economy will cause the RBNZ to hike rates further this year, we think the RBNZ will end its hiking cycle earlier than the financial markets anticipate. What’s more, we think a housing downturn in 2022 will weigh on the …
12th January 2022
Consumption to fully recover from lockdowns this quarter November’s data support our view that GDP will surpass its pre-delta level in Q4. But while the strength in retail sales is set to fade in the months ahead as Omicron weighs on consumption, the …
11th January 2022
We think that GDP growth in Australia will surprise to the upside. But with wage growth only approaching the 3% watermark the RBA would like to see by year-end, we expect the Bank to keep rates on hold. By contrast, we expect the RBNZ to hike interest …
Omicron probably won’t trigger lockdown In recent weeks new Covid-19 cases have been exploding. More people have tested positive in the past two weeks than in the rest of the pandemic combined. While a lower share of Omicron patients suffer severe …
7th January 2022
The Omicron variant will probably result in a stagnation in consumption this quarter. However, by worsening supply shortages it will only add to the upward pressure on inflation. The upshot is that it won’t necessarily prevent the RBA from ending QE in …
6th January 2022
House prices to fall in 2023 The easing in house price growth in December will continue in 2022. And we expect further tightening in lending standards and rises in interest rates to cause house prices to fall in 2023. The 1.0% m/m rise in house prices …
4th January 2022
The Omicron has lifted new virus cases to a record high, though hospitalisations remain low. (See Chart 1.) We estimate that there are around 2000 hospital beds available for Covid-19 patients in New South Wales, where cases are rising most rapidly, of …
23rd December 2021
The end is coming for QE In a speech this week, RBA Governor Lowe noted that the RBA’s central forecasts were consistent with the Bank tapering its bond purchase programme in February, and ending it altogether in May. But he also acknowledged two other …
17th December 2021
The government unveiled only modest increases in spending in today’s fiscal update. And while the unemployment rate has now reached levels where the Treasurer has pledged to start repairing the public finances, the government’s priority remains to support …
16th December 2021
Labour market strength points to early end to RBA bond purchases The remarkable recovery in Australia’s labour market following the recent lockdowns suggests that the Reserve Bank of Australia will end its asset purchases altogether in February. The …
Activity already rebounding The fall in New Zealand’s output in Q3 will have partially unwound in Q4 as lockdowns were gradually eased. And the fact the fall in GDP was much smaller than the RBNZ’s forecast supports our view that the Bank will lift …
15th December 2021
Treasurer Josh Frydenberg will be giving himself a pat on the back when he presents the Mid-Year Economic and Fiscal Outlook (MYEFO) on Thursday. After all, the federal underlying cash balance was $8bn smaller in the four months to October than predicted …
10th December 2021
The Reserve Bank of Australia and the Australian government are keen to explore the benefits of a retail central bank digital currency. But with pilot projects yet to start, we doubt that an eAud will be launched before the middle of this decade. The …
9th December 2021
The RBA still sounded dovish when it kept policy unchanged policy. We think that rates will rise earlier than the Bank anticipates but later and by less than what the financial markets price in. As widely anticipated, the Bank kept its policy rate …
7th December 2021