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GDP to contract, but recession unlikely As new infections in Sydney have hit fresh highs this week, the lockdown there has been extended until end-August. The blanket ban on construction has been lifted, but construction will remain banned in hotspots. …
30th July 2021
Sydney lockdown could set back the recovery in employment Bank to delay reduction in bond purchases from $5bn to $4bn to November However, we still expect QE to end in mid-2022, with first rate hike in early-2023 We expect the Reserve Bank of Australia to …
28th July 2021
Inflation will keep surprising to the upside Most of the surge in inflation in Q2 was driven by base effects that will unwind over the next couple of quarters, but we think that inflation will remain stronger than the RBA is anticipating. The 0.8% q/q …
We believe that the slump in net migration is holding back supply more than demand. Unless the government allows net migration to overshoot its pre-virus level for a prolonged period once the border reopens next year, we think that staff shortages will …
27th July 2021
RBA to delay tapering until November With New South Wales today declaring a “national emergency” as virus cases continue to rise, we now expect the Reserve Bank of Australia to reverse the tapering of its bond purchases and leave them unchanged at least …
23rd July 2021
With Sydney tightening its lockdown and the one in Victoria set to be extended, we now expect GDP to shrink by 0.5% q/q in Q3. The vaccine rollout isn’t advanced enough yet to ease the medical situation meaningfully, but it is set to keep accelerating and …
19th July 2021
RBNZ will hike rates next month We forecast at the end of last year that the RBNZ would end its asset purchase scheme by the middle of this year, one year ahead of schedule. While we had expected the Bank to wait until August, the Bank announced this week …
16th July 2021
Strong inflation locks in RBNZ rate hike We had already expected the RBNZ to hike rates in August and the surge in inflation in Q2 only bolsters our confidence in that forecast. Consumer prices in Q1 rose 1.3% q/q, well above the analyst consensus of a …
Overview - Sydney’s lockdown will keep a lid on Australia’s recovery for now, but booming housing markets should support consumer spending and dwellings investment in both countries. We don’t expect labour shortages to ease much when the border opens, so …
15th July 2021
Tight labour market set to lift wage growth before long The labour market continued to tighten in June and while the lockdown in New South Wales may result in some bumps over the next couple of months, we expect wage growth to accelerate soon . The 29,100 …
The RBNZ today sent a hawkish signal by announcing the end of its bond purchases. While we currently expect the Bank to start hiking rates in May next year, the risk is that it will happen earlier . The Bank’s asset purchases have fallen very sharply in …
14th July 2021
With the virus outbreak in New South Wales going from bad to worse we’re pencilling in a marked slowdown in Q3 GDP growth. However, given that deliveries of the Pfizer vaccine have been brought forward and more people are now encouraged to take the …
12th July 2021
RBA starts to taper RBA Governor Phillip Lowe has had a hectic week, with two speeches and the RBA’s July Policy decision. While the Governor reiterated that the RBA still believes policy support is likely to be needed for a long time, the stance of …
9th July 2021
Economic recovery continues to beat RBNZ expectations Bank likely to end QE in the months ahead We expect the RBNZ to hike rates in May next year We doubt the RBNZ will adjust any policy settings when it meets next Wednesday 14 th July. However, as the …
7th July 2021
By tapering its bond purchases and watering down its commitment to keep its policy rate unchanged until 2024, the RBA is paving the way for interest rate hikes in 2023 . The Bank's decision to shift to a flexible form of quantitative easing that doesn't …
6th July 2021
Lockdowns to weigh on retail sales in June Retail sales are sure to decline in June as the impact of the recent lockdowns weighs on household consumption. Even so, the rise in retail sales in May means the risks to our forecast the consumption was …
5th July 2021
Vacancies off the chart The Australian Bureau of Statistics’ measure of job vacancies surged 23.4% in Q2 which means they are now more than 50% above their pre-virus level. Job vacancies are now equivalent to 2.62% of the labour force, far higher than the …
2nd July 2021
Net trade to turn from drag to boost While export values hit a record high in May, this was largely driven by soaring export prices and export volumes probably dropped back. However, we think that the drag from net trade on GDP growth will fade before …
1st July 2021
House prices to continue booming a little longer House prices are continuing to surge and forward indicators suggest the upswing has a little further to run. But we suspect the boom will peter out by the end of the year and prices will decline a little in …
With the more contagious delta variant spreading in Australia, half of the population is now in lockdown. This highlights the Achilles heel of both countries’ virus management: their slow vaccine rollout. Just 8% of New Zealanders and 5% of Australians …
30th June 2021
Bank to move to flexible QE while keeping weekly pace of bond purchases at $5bn RBA expects wage growth to pick up slowly and gradually; we expect a faster rebound We expect the Bank to taper QE in November, with first rate hikes in early-2023 The Reserve …
29th June 2021
The labour force survey overstates the strength of the recovery in employment because it doesn’t capture the plunge in the number of non-resident workers. However, their impact on the labour market isn’t as large as the headline figures suggest as they …
27th June 2021
Will vaccine supply hit a snag? The worsening outbreak of the delta variant in Sydney underlines that with just 4% of its population fully vaccinated, Australia isn’t out of the woods just yet. The vaccine campaign has accelerated in recent months, but …
25th June 2021
The surge in consumption in Q1 resulted in the savings rate falling to a 15-year low. While we expect households to respond to falling house prices with higher savings, the rebound in GDP could be even stronger than we currently assume if households keep …
24th June 2021
We now expect the unemployment rate to approach 4% by late-2022. Even though the reopening of the border should ameliorate staff shortages a bit next year, we expect wage growth to accelerate markedly. As such, we’re bringing forward our forecast for the …
23rd June 2021
Hawkish moves When RBA Governor Lowe stood up to give a speech on Thursday, markets were still digesting the hawkish shift from the US Fed that had come just a few hours before. The Fed’s move to add two rate hikes in 2023 to its projection took it ahead …
18th June 2021
We expect the RBNZ to impose new lending restrictions in the months ahead which, in addition to rising interest rates, should result in house prices declining next year. The median house price in New Zealand was up 32.3% y/y in May. Part of that was due …
17th June 2021
Extraordinary labour market recovery to continue The surge in employment in May demonstrates that the labour market is continuing its extraordinary rebound which supports our call for the RBA to move to a flexible asset purchase programme in July. The …
Solid rebound in activity to persist The solid rise in activity in Q1 means that New Zealand easily avoided a second technical recession and we expect GDP to continue its rebound over the rest of 2021. The 1.6% quarterly rise in production GDP was …
The RBNZ’s hawkish rate outlook has prompted us to bring forward our forecast for the first RBNZ rate hike from November to May next year. But in contrast to the RBNZ, we don’t think the pandemic will cause lasting damage to the labour market so we’ve …
14th June 2021
Victorian lockdown lifted The two-week lockdown in Victoria has now been lifted, two weeks earlier than we had expected. While social distancing restrictions will remain in place, consumers can now shop again, which will provide a meaningful boost to …
11th June 2021
We now expect the RBA to refrain from announcing a target for the overall amount of bond purchases at the July meeting while keeping the weekly pace of purchases unchanged at $5bn . A more flexible approach to bond-buying would make it easier for the Bank …
8th June 2021
Remarkable GDP bounce back The 1.8% rise in GDP in Q1 was much stronger than most had anticipated and more than enough to lift output to an all-time high. Indeed, with GDP now 0.8% above its pre-virus peak, Australia has been the best performing OECD …
4th June 2021
Drag from net trade may persist The trade surplus widened again in April but that was largely driven by higher commodity prices. Export volumes will need to recover further in the months ahead to prevent trade from being a drag on GDP growth yet again in …
3rd June 2021
We expect inflation to rise to the mid-point of the RBA’s target band over the next couple of years. The main driver is a continued tightening of the labour market and a pick-up in wage growth. By contrast, we think that the goods supply shortages …
2nd June 2021
Recovery set to slow as GDP already above pre-virus peak Australia's GDP surpassed its pre-virus level in Q1 but with the vaccination rollout still slow and a fresh lockdown in Melbourne, the recovery is set to slow . The 1.8% q/q rise in Q1 GDP was …
The Reserve Bank of Australia still sounded dovish when it kept policy settings unchanged today. We think it will expand its bond purchase program by another $100bn next month. The RBA’s decision to keep interest rates and the parameters of its bond …
1st June 2021
House prices may decline in 2022 House prices are surging but forward indicators point to growth slowing in the months ahead. Indeed, we suspect prices may decline a little in 2022. Across the eight capital cities, house prices rose by 2.3% m/m in May, …
Australian Treasurer Josh Frydenberg noted in October that the Government would not pursue budget repair until the unemployment rated was comfortably below 6%. However, the unemployment rate fell much more rapidly ahead of the May Budget than almost …
31st May 2021
Investment rebound offset by lockdown The whopping 9.1% rise in machinery and equipment investment in the private capital expenditure survey was more than enough to offset the small decline in non-residential construction in the building works done data. …
28th May 2021
Capital investment rebound to continue We estimate that private investment rose by 4.1% q/q in Q1 and firms’ expectations of future capital expenditure suggest the strong rebound in investment is set to continue in the months ahead. Today’s private …
27th May 2021
In the short-run, China has no choice but to grit its teeth and keep buying Australian iron ore, even as bilateral ties continue to fray . But this dependence will diminish over time thanks to increased supply from other sources, greater use of recycled …
26th May 2021
The Reserve Bank of New Zealand sounded more optimistic at today’s meeting and signalled that it will start to hike rates in the second half of next year, in line with our long-standing forecast. If anything, the risks are that the Bank tightens policy …
Dovish RBA set to extend asset purchases by another $100bn in July However, early signs that inflation is about to recover strongly We think RBA will start to lift interest rates in late-2023 The Reserve Bank of Australia will still sound dovish at the …
25th May 2021
Tighter labour market will eventually lift wages The end of the JobKeeper wage subsidy resulted in a modest fall in employment in April. But a renewed drop in the participation rate meant that the unemployment rate declined from an upward revised 5.7% to …
21st May 2021
Jobs growth to resume, but at slower pace While the economy shed some jobs after the JobKeeper wage subsidy scheme came to an end, the surge in vacancies suggests employment will keep rising over the coming months . The 30,600 decline in employment in …
20th May 2021
RBNZ will tackle soaring house prices by restraining credit rather than raising rates However, economy should continue to recover towards tightening threshold We still expect the RBNZ to hike rates in 2022 While the Bank will acknowledge the new house …
19th May 2021
Wage growth will rise further but still has a long way to go The strength in wage growth in Q1 was partly due to one-off factors which will fade in the year ahead, but we still think the tightening in the labour market will see wage growth rise in earnest …
The release of the federal Budget on Tuesday took centre stage this week. (See our Update .) But the more striking development was the surge in the price of iron ore to a record high of nearly US$240 per tonne. (See Chart 1.) Chart 1: Iron Ore & LNG …
14th May 2021
Treasurer Josh Frydenberg revealed in today’s Budget that the government will spend nearly all of the windfall accruing from the stronger economic recovery. That will result in a permanently larger role of the state and a sizeable structural budget …
11th May 2021
