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The 1.7% q/q rise in New Zealand’s production GDP and the 0.9% q/q rise in Australia’s GDP in Q2 were among the strongest increases among major advanced economies. (See Chart 1.) However, GDP growth will slow sharply over coming quarters. Recent output …
22nd September 2022
Despite incurring a record loss last year and now having to operate with negative equity, the RBA has not requested a recapitalisation from the government. But given that it did receive a capital injection in 2013 and that it may well record further …
21st September 2022
Hawkish signals from Lowe tilt the balance The release of stronger-than-expected US inflation figures on Tuesday prompted a small repricing of market expectations for the upcoming RBA meeting in October Markets now price in around a 50% chance of …
16th September 2022
Unemployment rate will yet fall a bit further While the first rise in Australia’s unemployment rate since last year’s Delta lockdown should be followed by a renewed fall, it will encourage the Reserve Bank of Australia to slow the pace of tightening to …
15th September 2022
Unemployment rate may yet fall a bit further While the first rise in Australia’s unemployment rate since last year’s Delta lockdown should be followed by a renewed fall, it will encourage the Reserve Bank of Australia to slow the pace of tightening to …
GDP growth will slow sharply as higher interest rates bite Despite a large rise in Q2, New Zealand’s GDP remains well below its pre-virus trend and that shortfall will widen as the surge in interest rates weighs on activity. The 1.7% q/q rise in …
The continued resilience of the economy means that the RBA will have to raise rates more sharply than most expect, which in turn will result in a more severe slowdown in activity than widely anticipated. However, the more benign nature of the recent …
14th September 2022
Reopening boom will soon run its course The 0.9% q/q rise in Australia’s Q2 GDP was weaker than our forecast of 1.5% q/q. To be sure, that was partly due to a huge drag from inventories. In fact, the 2.2% q/q jump in consumption was even stronger than …
9th September 2022
Trade surplus has peaked The record fall in Australia’s trade balance partly reflects bad weather that held back coal exports, but the recent fall in the iron ore price hasn’t …
8th September 2022
Lower iron ore price to weigh on export values The biggest fall in Australia’s trade balance in history partly reflects bad weather that held back coal exports, but the recent fall in the iron ore price hasn’t fully fed through so export values will …
GDP growth will slow over coming quarters The 0.9% q/q rise in Australia’s Q2 GDP was broadly in line with the RBA’s expectations and won’t move the needle in terms of the size of the next rate hike. That result was a touch below the analyst consensus of …
7th September 2022
GDP growth will slow sharply over coming quarters The 0.9% q/q rise in Australia’s Q2 GDP was broadly in line with the RBA’s expectations and won’t move the needle in terms of the size of the next rate hike. That result was a touch below the analyst …
The RBA lifted rates by 50bp today and dropped some hints that further tightening will be less aggressive . Even so, we still expect the Bank to hike rates more aggressively over coming months than most expect, which will weigh heavily on activity and …
6th September 2022
RBA will slow pace of tightening before long While the RBA hiked rates by 50bp today as widely anticipated, it dropped some hints that further tightening will be less aggressive. The Bank’s decision to hike the cash rate by 50bp was correctly anticipated …
GDP growth to slow further over coming quarters The partial GDP data released over the last couple of days suggest that GDP growth was much weaker last quarter than we had anticipated. With the housing downturn now starting to bite, it will slow to a …
Jobs summit tweaks migration goalposts The headlines were dominated by the Jobs Summit this week, where the Labor government announced that it will lift the 2022/23 cap on the annual number of permanent migrants from the current 160,000 to 195,000. …
2nd September 2022
Capital spending will rebound over coming quarters The continued rise in machinery and equipment investment in Q2 won’t offset a plunge in construction investment, but firms’ optimistic capital plans suggest this will prove short-lived. Today’s capital …
1st September 2022
Capital spending to rebound over coming quarters The continued rise in machinery and equipment investment in Q2 won’t offset a plunge in construction investment, but firms’ optimistic capital plans suggests this will prove short-lived. Today’s capital …
Plunge in affordability to result in further strong price falls House prices are falling at the fastest pace in four decades. While leading indicators of housing market activity remain consistent with a mild downturn, rapidly worsening affordability due …
Australia consumers going from strength to strength while inflation remains high Bank to hike rates by 50bp in September before reverting to smaller 25bp hikes Slump in house prices and slowdown in inflation to prompt cuts next year With the …
30th August 2022
Reopening boom to last for a while yet Not only did retail sales rise for the seventh consecutive month in July, the strong size of the increase strongly suggests that the Reserve Bank of Australia will hike rates by another 50bp next month. The 1.3% m/m …
29th August 2022
Reopening boost to last for a while yet Not only did retail sales rise for the seventh consecutive month in July, the strong size of the increase strongly suggests that the Reserve Bank of Australia will hike rates by another 50bp next month. The 1.3% m/m …
GDP growth is holding up The August S&P Global flash PMIs are consistent with our view that the euro-zone is entering recession. And with inflation set to hit 14.5% early next year, the UK economy will shrink before long, too. The composite PMI for the …
26th August 2022
If the slump in China’s property sector continues for much longer, Australia’s export revenue would take a hit as iron ore prices tumble. But there are good reasons to think that the impact on aggregate demand would be smaller than many anticipate . Our …
24th August 2022
Australia’s house prices are now falling at a similar rate as they did during the 2017-19 downturn, which was the largest in the country’s modern history. (See Chart 1.) Home sales remain well above pre-pandemic levels, building activity is holding up …
22nd August 2022
Inflation hits 7% in June The Australian Bureau of Statistics published a preliminary estimate of its new monthly CPI indicator this week. There are two key points. First, monthly inflation was nearly 7% in June, much higher than the Q2 figure of 6.1%. …
19th August 2022
Labour market hasn’t turned for the worse just yet We wouldn’t read too much into the first drop in employment since last year’s lockdowns. Indeed, the continued tightening of the labour market should encourage the RBA to press ahead with another 50bp …
18th August 2022
The RBNZ lifted the overnight cash rate by 50bp to 3% today as everyone had anticipated and signaled that it will deliver another 50bp hike in October. We now expect the Bank to hike rates to a peak of 4% instead of our previous forecast of 3.5%, but we …
17th August 2022
Wage growth will reach 3.5% by mid-2023 Wage growth surpassed its pre-virus peak in Q2 and will jump above 3% this quarter due to a surge in the minimum wage and a tightening labour market. The 0.7% q/q rise in hourly wages excluding bonuses was a touch …
An increase in the permanent migration programme will help to alleviate labour shortages. But the rapid tightening of the labour market in recent months has been driven by strong labour demand rather than a shortfall in supply. The upshot is that the RBA …
16th August 2022
ABS will publish monthly inflation figures It’s been a long time coming, but the Australian Bureau of Statistics revealed this week that it will start publishing monthly in addition to the existing quarterly data on consumer prices. We hope the new …
12th August 2022
Tight labour market and faster inflation point to another 50bp hike next week However, higher interest rates are taking their toll on housing market We expect two more 25bp hikes in October and December, but rate cuts next year Rising interest rates are …
10th August 2022
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 …
RBA turns more pessimistic The RBA delivered yet another 50bp rate hike on Tuesday as widely anticipated. However, following the release of weaker-than-expected Q2 inflation data last week, financial markets are now pricing in a peak in the cash rate of …
5th August 2022
Jump in services imports limiting boost from net trade 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 . The trade …
4th August 2022
Rising unemployment suggests RBNZ will soon stop hiking 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 . …
3rd August 2022
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 …
2nd August 2022
House prices will continue to fall sharply 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 …
1st August 2022
Housing downturn to bite next year Australian Treasurer Jim Chalmers revealed on Thursday that the government now expects GDP growth to slow from 3.75% in the financial year that ended in June to 3% in 2022/23 and to 2% 2023/24. Our view is that the …
29th July 2022
Consumption will remain resilient The sixth consecutive rise in retail sales in June underlines that households are weathering the headwinds from falling house prices, soaring inflation and surging mortgage payments well and we reiterate our long-held …
28th July 2022
Labour market surprising to the upside, but inflation in line with expectations Bank to keep hiking by 50bp until October Rates to peak at 3.6%, but housing downturn will prompt rate cuts next year While the labour market has surprised to the upside, …
27th July 2022
Inflation to peak around 7% While inflation picked up in Q2, it wasn’t as strong as we had expected. That suggests that the RBA may opt for another 50bp rate hike at next week’s meeting rather than the 75bp we had been anticipating. The 1.8% q/q rise in …
Our view that GDP growth will slow below potential next year assumes one of the sharpest falls in dwellings investment in Australia’s modern history. However, this Update explains why dwellings investment could hold up better than we’re anticipating. In …
25th July 2022
Commodity prices falling With the price of Brent crude oil and some other commodity prices having fallen in recent weeks, the inflation outlook has become a little more nuanced. However, domestic inflationary pressures are still strengthening. The drop in …
22nd July 2022
The minutes of the RBA’s July meeting showed that the Bank debated a smaller 25bp rate hike but ended up hiking rates by 50bp. Those minutes also included a discussion of the level of the neutral interest rate, which will come into touching distance …
21st July 2022
We doubt that the upcoming review of Australia’s monetary policy framework will result in a change to the RBA’s 2-3% inflation target. But the Bank could be forced to put more emphasis on house prices, reduce the frequency of Board meetings, and …
20th July 2022
Inflation has probably peaked The stronger-than-expected rise in consumer prices in Q2 adds some upside risks to our forecast that the Reserve Bank of New Zealand will lift rates to 3.5%, but we still think that weaker economic activity will force the …
18th July 2022
Labour market tightening rapidly On balance, the economic data released this week are consistent with our view that the Reserve Bank of Australia will tighten policy more aggressively than most anticipate. Admittedly, the further slide in consumer …
15th July 2022
Unemployment rate may fall to 3% before long The sharp fall in the unemployment rate in June is consistent with our view that the Reserve Bank of Australia will need to tighten monetary policy more aggressively than most anticipate. The 88,400 jump in …
14th July 2022
