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Recession will drive RBNZ to cut rates by Q4 With New Zealand now in recession, we’re more confident that the RBNZ will start cutting rates by Q4 of this year itself. The -0.1% q/q contraction in production GDP was in line with what most, including …
14th 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
Rate hikes will drive double-dip housing downturn The big news this week was RBA Governor Lowe indicating that the Board’s patience to tolerate high inflation was waning. The Bank’s hawkish turn, coming at a time when unit labour costs are growing at …
9th June 2023
Net trade to boost GDP in Q2 The narrowing of the trade surplus in April was driven in large part by a deterioration in the terms of trade. We think net exports will actually provide a modest boost to GDP growth this quarter. The decline in the trade …
8th June 2023
Net trade to boost GDP in Q2 The rise in the import bill in April likely overstates the strength of domestic demand in Australia. The decline in the trade surplus to $11.2bn in April, from a downwards-revised $14.8bn in March, was sharper than most had …
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
RBA could be forced to keep hiking into economic downturn Real GDP growth slowed sharply last quarter as household spending ground to a standstill. However, with productivity falling for a fourth consecutive quarter, unit labour costs grew apace. …
Flagging productivity raises risk of higher terminal interest rate Although the economy is clearly slowing, dismal productivity gains raise the risk that the RBA will have to raise interest rates above the 4.35% peak we have pencilled in. The 0.2% q/q …
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
RBA will deliver another 25bp hike next month 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. Today’s decision …
Largest minimum wage hike in 41 years adds pressure on RBA The 5.75% increase in the minimum wage is the largest on record and adds to the case for the RBA to raise interest rates further. The Fair Work Commission today announced that both the minimum …
2nd June 2023
CoreLogic data published earlier today showed that house prices continue to make gains in May, heightening risks to our long-held view that the housing downturn has further to run. If house prices do stabilise or rise higher, that in turn raises the …
1st June 2023
House prices gain traction With house prices having risen for the third month in a row, there is a growing risk to our view that the housing downturn has further to run. Nonetheless, with rising interest rates set to squeeze affordability even more, we …
Economy softening, but not collapsing Inflation overshooting Bank’s forecasts and upside risks abound We now expect two more 25bp hike in June and July; rate cuts unlikely until Q2 2024 With inflation set to overshoot the Reserve Bank of Australia’s …
31st May 2023
Renewed acceleration will prompt further RBA tightening While the pick-up in inflation in April mostly reflects base effects from the excise duty cut a year ago, trimmed mean CPI picked up as well. With inflation set to overshoot the RBA’s forecasts this …
Renewed acceleration in inflation will prompt further RBA tightening With inflation set to overshoot the RBA’s forecasts this quarter, the Bank will continue to increase interest rates, perhaps as soon as next week. According to the Monthly CPI …
Underlying price pressures moderating The final default market offer prices announced by the Australian Energy Regulator this week were a touch higher in New South Wales than the draft unveiled in March. However, the Victorian energy regulator announced a …
26th May 2023
Sluggish consumption adds to case for RBA pause Coupled with rising unemployment and lukewarm wage growth , the weakness in retail sales in April supports our view that the Reserve Bank of Australia is done hiking interest rates . Retail sales values were …
Weak consumption adds to case for RBA pause The weakness in retail sales in April supports our view that the Reserve Bank of Australia is done hiking interest rates. Retail sales values were unchanged last month, a weaker result than the analyst consensus …
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
RBNZ signals tightening cycle is at an end The RBNZ slowed the pace of tightening this month, while signalling that its tightening cycle was at a close. The Bank’s decision to hike its official cash rate by 25bp, to 5.50%, was correctly predicted by 20 …
As in other advanced economies, Australia’s neutral rate of interest rate will probably edge up a bit over the coming decades. That will result in higher borrowing costs, but Australia’s low public debt levels mean that the government will be able to …
23rd May 2023
Productivity crunch creates dilemma for RBA The RBA has been ringing the alarm bells about dismal productivity gains for a while now. In the minutes of its May meeting, the Board noted that if productivity growth did not return to the modest pace recorded …
19th May 2023
The weakness in April’s jobs data suggest that the labour demand is starting to cool. Admittedly, there continue to be some pockets of resilience in the labour market. However, with wage growth remaining sluggish, we think it’s more likely than not that …
18th May 2023
Labour market will loosen further The labour market is showing signs of cooling, reinforcing our view that the RBA’s tightening cycle is over. The 4,300 fall in employment in April was much weaker than most had anticipated (Refinitiv Consensus: +25k, …
The RBNZ will lift its OCR by 25bp next week. With upside risks to inflation persisting, we’ve pencilled in another 25bp hike in July. However, we still think the Bank will pivot to rate cuts by year-end. The latest data don’t tell a compelling story as …
17th May 2023
Sluggish wage growth suggests RBA is done tightening The Q1 wage price index showed that quarterly wage gains were a bit softer than the RBA had anticipated which supports our view that the Bank won’t raise interest rates any further. The 0.8% q/q rise in …
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
RBA retains its tightening bias The minutes of the RBA’s May meeting were on the hawkish side, but we still think that the Bank’s tightening cycle is already over. Although the Board discussed the option of leaving the cash rate unchanged, it ultimately …
Australia’s house prices have rebounded over the last couple of months and most leading indicators suggest that the recovery has legs. However, we doubt that a sustained recovery is on the cards. While false dawns in the housing market are rare, they did …
15th May 2023
Treasury won’t go on a spending spree Earlier this week, the Australian government boasted its first budget surplus in fifteen years. However, the picture in New Zealand is less rosy. The kiwi nation’s fiscal accounts are in worse shape than the …
12th 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
Wage pressures bubbling up Data released earlier in the week showed that pay increases under newly-inked enterprise bargaining agreements (EBAs) have started to surge in Australia. Employees covered by new EBAs received an annualised pay hike of 3.0% in …
5th May 2023
Net exports won’t have boosted GDP in Q1 The widening of the trade surplus in recent months belies the negligible contribution that net exports will have made to Q1 GDP. Indeed, we think the weakness in import values last quarter primary reflected …
4th May 2023
Net exports won’t have boosted GDP in Q1 The wide trade surplus belies the negligible contribution made by net exports to Q1 GDP. The widening of the trade surplus to $15.3bn in March, from an upwards-revised $14.2bn in February, was in contrast to what …
Weakness in consumption growth While retail sales values rose at a decent pace in March, we estimate that sales volumes fell the most since 2021’s lockdowns last quarter and that weakness has further to run. That in turn should prevent the Reserve Bank of …
3rd May 2023
Weakness in consumption growth will deter RBA from further rate hikes While retail sales values rose at a decent pace in March, we estimate that sales volumes fell the most since 2021’s lockdowns last quarter and that weakness has further to run. The 0.4% …
Labour market continues to run red hot New Zealand’s labour market remained extremely tight last quarter, presenting upside risks to our forecast for a 25bp rate hike later this month. The 0.8% q/q rise in employment was stronger than most had …
Tight labour market raises the risk of outsized RBNZ hike The strength of New Zealand’s labour market last quarter poses upside risks to our view that the RBNZ will lift rates by 25bp later this month. The 0.8% q/q rise in employment in Q1 was stronger …
2nd 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% …
Tightening cycle over but rates will only be lowered in Q2 2024 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 …
House price rebound will prove fleeting The ongoing rebound in house prices is living on borrowed time. With affordability extremely stretched and the economy poised for a sharp downturn, we’re sticking to our forecast that house prices will fall another …
RBNZ to relax lending rules On Wednesday, the RBNZ unveiled its proposal to ease Loan-to-Value Ratio (LVR) restrictions on mortgage lending by banks. With house prices now 18% below their January 2022 peak, the RBNZ has judged that threats to financial …
28th April 2023
Inflation moderating, but still far too strong to be consistent with RBA’s target Further tightening needed to return inflation to target by mid-2025 Rate cuts will start a bit later than most expect; our forecast is Q2 2024 Note: We’ll be discussing the …
26th April 2023
RBA will deliver a final 25bp rate hike next week While inflation is moderating slightly faster than the RBA had anticipated, price gains remain far too strong to be consistent with the Bank’s 2-3% inflation target and we’re sticking to our forecast of a …
Inflation will only return to target in H2 2024 While inflation is moderating slightly faster than the RBA had anticipated, price gains remain far too strong to be consistent with the Bank’s 2-3% inflation and we’re sticking to our forecast of a final …
New Zealand’s housing downturn not over yet According to data released by REINZ earlier this week, the median house price in New Zealand fell by 2.2% in seasonally-adjusted m/m terms in March. With house prices already down by 18% from their January 2022 …
21st April 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
Inflation is coming off the boil Although inflation in Q1 was below what the RBNZ had expected, we don’t expect the Bank to take its foot off the brakes just yet. Indeed, with non-tradables prices continuing to rise at a rapid clip, the RBNZ is likely to …