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The Reserve Bank of New Zealand hiked rates by 50bp in July but emerging worries about the health of the economy are consistent with our view that rates will peak around 3.5% rather than the 4% predicted by the Bank and financial markets. And we’re …
13th July 2022
GDP growth looking solid this year The available evidence suggests that Australia’s households are so far shrugging off the headwinds from rising interest rates and falling real incomes. In last week’s Weekly , we discounted the weakness in the ABS’ …
8th July 2022
Overview – With inflation rising even further than we had anticipated, both the RBNZ and the RBA will slam harder on the brakes than most anticipate. We expect policy rates to peak around 3.5% in both countries. With the ongoing housing downturns set to …
7th July 2022
Huge boost from net trade won’t last The surge in the trade surplus in May suggests that net exports provided an even bigger boost to Q2 GDP growth than we had anticipated. But that boost should fade as the border reopening lifts outward tourism . The …
Inflation is still rising and labour market still tightening We expect the Bank to hike rates by a further 50bp in July But as the housing downturn weighs on activity, RBNZ will reverse course next year Rising interest rates have started to weigh on house …
The RBA sounded a little more cautious about the outlook for the economy when it hiked rates by 50bp today, but we suspect that further upside surprises to inflation will encourage it to eventually lift the cash rate to around 3.5%. However, we expect the …
5th July 2022
House prices are in free fall CoreLogic reported that seasonally adjusted house prices in the eight capital cities fell 0.6% m/m in June, following the 0.4% drop in May. That marks the sharpest fall since 2019, and the housing downturn is only just …
1st July 2022
Housing downturn only warming up The monthly decline in house prices in June was the largest since 2019 but is unlikely to be the sharpest decline in the current downturn. We think house prices will eventually fall by 15% from their April peak, which will …
Consumption growth will remain strong this year The strong rise in retail sales in May highlights the strength in the Australian economy and is consistent with our view that the RBA will continue to hike rates aggressively in the months ahead. The 0.9% …
29th June 2022
Strength in consumption and labour market points to 50bp hikes in July and August Bank to slow tightening in H2, rates will peak above 3% Housing downturn to prompt rate cuts next year The Reserve Bank of Australia will probably lift the cash rate by …
28th June 2022
RBA review won’t change inflation target Treasurer Jim Chalmers butted heads with RBA Governor Phillip Lowe this week over who would lead the forthcoming review of monetary policy. Chalmers denied the Governor’s wish that the review be jointly led by the …
24th June 2022
Wage growth set to rise The 5.2% increase in the Australian minimum wage announced by the Fair Work Commission this week was even bigger than the 5.1% y/y rise in the CPI that Prime Minister Anthony Albanese had suggested the minimum wage should match. …
17th June 2022
Strong employment growth will keep RBA on track The strong rise in employment in May will keep pressure on the RBA to continue its aggressive hiking cycle in the months ahead. The 60,600 rise in employment was well above the Bloomberg analyst consensus of …
16th June 2022
Activity to rebound in Q2 The fall in GDP at the start of the year was due to the disruption to activity from the Omicron outbreak. Growth will have rebounded strongly in the current quarter, but we suspect falling house prices and high interest rates …
The 5.2% increase in the minimum wage announced by the Fair Work Commission will directly lift the Wage Price Index by around 0.7%-pt. But the increase will also contribute to upward pressure on wage growth and inflation more generally. On that basis, the …
15th June 2022
Bank set to deliver 50bp hikes in July and August We argued two months ago that “most analysts are overestimating the near-term negative impact of RBA rate hikes on household finances and are therefore underestimating the degree of tightening required …
10th June 2022
Hawkish shifts by the RBA and the RBNZ in recent weeks have prompted us to forecast an even more aggressive hiking cycle by both central banks in the months ahead. Both central banks hiked rates by 50bp at their latest meeting and we have now pencilled in …
9th June 2022
With the RBA set to hike the cash rate to 3% by early-2023, we now expect house prices to fall by 15% from their April peak. While the economy has considerable momentum from reopening in the near-term, plunging house prices will weigh on consumer spending …
8th June 2022
The 50bp hike in the cash rate today is consistent with our view that interest rates will peak at higher levels than most anticipate and we’re expecting additional 50bp hikes in July and August . That 50bp hike was anticipated by just a handful of …
7th June 2022
Mining underinvestment taking its toll The 0.8% q/q rise in Q1 GDP left output 4.4% above its pre-pandemic peak, one of the strongest performances among advanced economies. (See Chart 1.) With stagnating real incomes weighing on consumer confidence and …
3rd June 2022
Border reopening to boost services imports before long While the rise in export values in April was mostly due to rising commodity prices, the further fall in import values suggests that net trade will turn into a boost to GDP growth in Q2 after a huge …
2nd June 2022
GDP growth to accelerate in Q2 The solid rise in Q1 GDP supports our view that the economy will hold up better in the face of rising interest rates and falling real incomes than most anticipate . The 0.8% q/q increase in output was stronger than the …
1st June 2022
Housing downturn just beginning The monthly decline in house prices in May is the start of a significant housing downturn as the RBA’s hiking cycle continues. There’s a risk that this prompts the RBA to end its hiking cycle early, but our central forecast …
The rapid improvement in the public finances means that the government can provide financial support to households struggling with high energy bills without raising taxes. But if it did decide that more revenue is needed, a windfall tax on mining profits …
31st May 2022
Mediocre labour market data point to another 25bp rate hike in June However, further upside surprises in inflation should prompt faster hikes in Q3 Rates to peak at 3.0% by early-2023, rate cuts to come in 2024 The Reserve Bank of Australia will probably …
House prices in New Zealand are tumbling and all signs point to a further deterioration in the months ahead. On that basis, we are revising up our forecast for the peak to trough decline in prices from 10% to 20%. That’s why we expect the RBNZ’s hiking …
30th May 2022
Surge in utility bills adds to price pressures The activity data released this week were a mixed bag. While retail sales powered ahead in April, real private investment probably fell in Q1. What’s more, it now looks likely that house prices started to …
27th May 2022
Consumption to defy falling real incomes and rising interest rates The fourth consecutive rise in retail sales values in April underlines that consumers are not throwing in the towel in the face of falling real incomes and rising interest rates . The 0.9% …
Investment to rebound in earnest in the years ahead We estimate that private investment fell by 1.3% q/q in Q1, but firms’ expectations of future capital expenditure suggest investment will strengthen before long. Today’s private capital expenditure …
26th May 2022
The RBNZ sounded hawkish when it hiked rates by 50bp today, and we now think rates will rise to 3.5% by the end of this year. But the Bank endorsed our long-held non-consensus view that rate cuts will be required in the years ahead. We think the Bank will …
25th May 2022
House prices are starting to fall across Australia earlier than we had anticipated. While we still expect the RBA to hike rates until early-2023, the experience from previous housing downturns points to an earlier end to the current tightening cycle. …
24th May 2022
A Labor government will probably keep fiscal policy looser than the previous Coalition government, putting more pressure on the RBA to hike interest rates. But while a Labor government will make greater efforts to decarbonise the economy, the bulk of …
23rd May 2022
While the government’s Budget was focused on equipping households to withstand surging living costs, by adding to demand we think it will cause inflation to be higher over the next year. That’s all the more reason for the RBNZ to continue hiking rates …
20th May 2022
RBA to keep hiking by 25bp in June The 0.7% q/q rise in the wage price index in Q1 was a little weaker than we had anticipated and left the annual rate at a sluggish 2.4%. Digging a little deeper though, it’s clear that wage growth is set to accelerate …
The economy is still running too hot We expect the Bank to hike rates by a further 50bp in May But as the housing downturn intensifies, the RBNZ will reverse course next year The New Zealand economy was running hot even when the Omicron variant was …
19th May 2022
Mediocre labour market data will encourage RBA to stick to 25bp hikes While the unemployment rate held steady at a 48-year low in April, the slowdown in employment growth and the sluggishness of wage growth will probably convince the RBA to hike rates by …
Consistent wage growth to keep the RBA on track The unchanged pace of quarterly wage growth in Q1 should ensure the RBA won’t accelerate its hiking cycle just yet. But with the labour market still tightening and inflation still rising, we think wage …
18th May 2022
We now expect Australia’s inflation to rise by more than 6% this year. Even allowing for an acceleration in earnings growth and a further solid rise in employment as immigration resumes, that will result in the first annual fall in real household …
17th May 2022
With inflation set to surpass 6% later this year, we expect real household disposable income to fall at the fastest pace since the early 1990s recession. (See here .) In response, Labor leader Albanese this week suggested that the minimum wage should be …
13th May 2022
The 6% rise in the minimum wage will help lift wage growth further this year. But a loosening labour market and smaller minimum wage hikes in the years ahead will facilitate a slow down in wage growth from next year. In Q1 the unemployment rate remained …
11th May 2022
The sharpest fall in real incomes since the 1990/91 recession won’t prevent a strong rebound in consumption this year and next. But with the tailwind from reopening the economy set to fade, consumption and GDP growth will fall below trend in 2024, …
9th May 2022
RBA starts the climb The RBA finally came around to our long-held view that rate hikes would be needed in the first half of this year and hiked rates at the meeting on Tuesday. Admittedly, we had expected the Bank to hike by 15bp, bringing rates back to …
6th May 2022
Trade was a big drag on growth in Q1 The rise in the trade balance in March won’t be enough to prevent trade from being a significant drag on growth in Q1. In the months ahead higher export prices due to the war in Ukraine should lift the trade surplus …
5th May 2022
Weak confidence won’t hold back consumption recovery Retail sales defied the weakness in consumer confidence in March and with the household savings rate still high, we expect consumption to keep expanding at a strong pace . The 1.6% m/m rise in retail …
4th May 2022
Tight labour market sets stage for another 50bp hike by RBNZ The continued tightness in the New Zealand labour market despite the omicron outbreak provides further evidence that the economy is still running hot. That’s why we expect the RBNZ to hike rates …
The RBA started hiking the cash rate today and sounded hawkish for the first since the start of the pandemic. Our forecast that interest rates will reach 2% by year-end is far above the analyst consensus of 1%, but the risks are tilted to the upside . The …
3rd May 2022
Inflation now surging in Australia The 2.1%q/q rise in headline inflation and the 1.4% rise in trimmed mean inflation in Australia in Q1 were much stronger than the RBA was forecasting. Admittedly, the strength in inflation has been largely driven by …
29th April 2022
RBA has not kicked off tightening cycle with 50bp hike since early 1990s But inflation now on track to reach levels last seen in early 1990s Bank to lift cash rate to 0.50% in June, rate to peak at an above-consensus 2.5% The surge in inflation would …
27th April 2022
Inflation to surpass 6% Inflation surged in Q1 and is on track to surpass 6% later this year, exceeding the levels reached around the GST hike in 2000. With trimmed mean inflation already higher than at the start of previous tightening cycles, the Reserve …
RBA bringing forward rate hikes The Reserve Bank of Australia is increasingly coming around to our view that rate hikes will be needed before long. The minutes of the RBA’s April meeting revealed that the Bank is becoming concerned about the second-round …
22nd April 2022
