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Australia & New Zealand

RBNZ tightening cycle will stop by year-end

Rising interest rates are weighing on the housing market but economic activity is holding up and inflation has continued to accelerate. The upshot is that the Reserve Bank of New Zealand will hike interest rates by another 50bp at the upcoming meeting on 17th August, but we expect smaller 25bp across Q4.

10 August 2022

The implications of an escalating Taiwan crisis

The extent to which neighbouring countries would be affected by an escalation of tensions between China and Taiwan would depend both on which sides they take and on the nature of restrictions imposed by the West and China. ASEAN countries are most reliant on China both as a source of imported inputs as well as a destination for exports, while major disruptions to semiconductor production in Taiwan would severely restrain Japan’s manufacturing industry despite its smaller trade links with China.

10 August 2022

RBA will press on with another 50bp hike next month

The Reserve Bank of Australia has indicated that it will slow the pace of tightening over coming months as tighter policy is starting to weigh on activity. With growth softening rather than collapsing, we’re sticking to our forecast of another 50bp hike next month, but we now expect the Bank to revert to smaller 25bp hikes during the fourth quarter.  

5 August 2022
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International Trade (Jun. 2022)

The surge in Australia’s trade surplus to yet another record-high in June suggests that net exports will boost Q2 GDP growth by around 1%-pt though that tailwind will fade before long.

Labour Market (Q2 2022)

The first rise in New Zealand's unemployment rate since mid-2020 suggests that the RBNZ's hiking cycle is nearing its end. Indeed, we expect the RBNZ to start cutting interest rates next year.

RBA will cut interest rates next year

The Reserve Bank of Australia revised up its inflation forecasts sharply when it lifted the cash rate by 50bp today and we expect it to hike rates more aggressively over coming months than most anticipate. However, we expect the Bank to start cutting interest rates next year as GDP growth grinds to a halt.

Australia CoreLogic House Prices (Jul.)

Allowing for seasonal swings, house prices in July fell as much as they did at the height of the 2017-2019 downturn. With soaring mortgage rates weighing on affordability, prices will continue to fall sharply over coming months.

Economy to slow more sharply than Treasurer expects

While we expect the economy hold up a bit better than the Treasurer in the near-term, aggressive policy tightening by the Reserve Bank of Australia will exacerbate the ongoing housing downturn. Accordingly, we expect GDP growth to slow more sharply in the coming financial year than the government is anticipating. Meanwhile, the mulled easing of China’s export ban on Australian coal imports won’t provide a big boost to the economy.

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