Australia & New Zealand

Australia & New Zealand


Australia’s consumer exuberance won’t last

The strong rebound in consumer spending in November is consistent with our view that GDP surpassed its pre-lockdown peak in Q4 already. And while the Omicron tsunami seems to have resulted in a renewed slowdown in consumption, mounting staff shortages and disruptions to goods supply will result in continued strong increases in consumer prices. The upshot is that we still expect the RBA to end its bond purchases in three weeks, though the sluggishness in wage growth means we don’t expect the first rate hike until early next year.

14 January 2022

The outlook for high-beta DM currencies in 2022

We think that rate differentials and commodity prices will be the key factors driving the relative performance of six “high-beta” DM currencies in 2022, continuing last year’s trend. We expect all these currencies to lose ground against the US dollar this year, although we think that a more hawkish Riksbank and Bank of England will mean that SEK and GBP hold up best, while our forecast of falling energy prices, especially that of European natural gas, suggests to us that NOK will do worst. Drop-In: Neil Shearing will host an online panel of our senior economists to answer your questions and update on macro and markets this Thursday, 13th January (11:00 ET/16:00 GMT). Register for the latest on everything from Omicron to the Fed to our key calls for 2022. Registration here.

13 January 2022

Australia - Retail Sales/External Trade (Nov. 2021)

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 likely drag from net trade to GDP growth in Q4 is also likely to reverse in Q1.

11 January 2022
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Our key calls for 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 rates a bit faster than most expect. Our view that commodity prices will continue to fall means that the Aussie dollar will weaken further.

We still expect the RBA to end QE in February

Surging cases of the Omicron variant are putting Australia’s healthcare system under pressure and will weigh on consumption in Q1. But we think fresh lockdowns will be avoided. What’s more, growing staff shortages due to employees self-isolation may increase inflation and reduce unemployment in the near term. On that basis, we still expect the RBA to announce the end of its bond purchase programme at its next meeting in February.

Australia - Omicron will add to upward pressure on inflation

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 February as we anticipate.

Australia CoreLogic House Prices (Dec.)

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.

Omicron won’t hold back consumption for long

The Omicron has lifted new virus cases to a record high, though hospitalisations remain low.  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 which only 300 are occupied. A similar number should be available in Victoria. So far, the authorities are responding with mild restrictions, including mask mandates and QR check-ins. More draconian restrictions on activity could reverse the recovery in spending. But with the household savings rate reaching an eye-watering 20% in Q3 and consumer confidence holding up, it is only a matter of time before consumption bounces back in earnest. Our forecast that consumption will rise by 8% next year is well above the analyst consensus of 4.8%.

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