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Draconian lockdown in Victoria to weigh on recovery and lift unemployment Inflation and wage growth set to soften further We still expect the Bank to start buying-longer dated bonds early next year The Reserve Bank of Australia isn’t keen on providing …
25th August 2020
Australian wine in China’s firing line China has launched an anti-dumping investigation into the Australian wine industry which could impose costly tariffs on Australian wine. This is not the first incident of trade tension with China this year. In May …
21st August 2020
Negative interest rates would not necessarily weaken the exchange rate, but they would almost certainly reduce bank lending rates. While they could result in lower lending margins, New Zealand’s banks are well capitalised and are among the most profitable …
20th August 2020
Falls in employment ahead Official labour market statistics for July showed Australian employment rose a further 0.9% m/m to be up 2.8% from its trough in May. Even so, the 0.6ppt rise in the participation rate means that the unemployment rate edged up to …
14th August 2020
Employment will fall again in coming months The pick-up in employment in July is likely to unwind in the coming months as the stricter lockdown in Victoria weighs on the labour market. The 114,7000 rise in employment in July was much stronger than the …
13th August 2020
The Reserve Bank of New Zealand (RBNZ) further expanded its quantitative easing programme at today’s meeting and we think the Bank will cut rates into negative territory next year. The Bank’s decision to keep rates on hold was correctly anticipated by all …
12th August 2020
Recovery slowing to a crawl The state of Victoria entered a severe lockdown on Thursday, with most non-essential businesses now shut. As we outline here , this should push activity in Victoria around 20% below normal levels until September and means we …
7th August 2020
RBNZ on track to meet its QE targets New Zealand economy broadly recovered The RBNZ will hold off until 2021 to launch negative rates to combat weak inflation The RBNZ has stabilised the pace of asset purchases in recent months and is on track to meet its …
5th August 2020
Unemployment rate will rise again in Q3 The fall in the unemployment rate to 4.0% in Q2 shows that the government’s generous wage subsidy protected many jobs but we suspect that as that comes to an end, unemployment may rise somewhat Q3. The 0.4% q/q …
We predicted four months ago that Australian house prices would fall by 5-10% from their peak. The short-lived nature of the recent downturn and the fact that affordability is looking increasingly attractive means that forecast is still looking good. …
4th August 2020
The RBA turned more pessimistic about the outlook for the economy when it kept policy settings unchanged today and we think it will engage in additional asset purchases before long . As widely anticipated, the RBA kept both its cash rate as well as the …
Lockdown to weigh on recovery Retail sales and external trade both rose in the month of June but may weaken again before long as imports begin to normalise and the renewed lockdown in Victoria weighs on retail sales. The 2.7% m/m rise in retail sales …
The additional restrictions on activity imposed in Victoria this week to curb the renewed surge in virus cases will cause the recovery in output to slow markedly in Q3. The number of virus cases in Victoria continues to surge, with new daily cases …
3rd August 2020
House prices will keep falling The further decline in house prices in July is likely to persist in the coming months given the renewed lockdown and disruptions to activity in Melbourne. We ultimately expect house prices to fall by 5-10%. House prices …
A new outbreak in Victoria has caused daily new cases to surge to a record high in Australia. By contrast, New Zealand has maintained its elimination of the virus with new cases remaining very low and only being detected in quarantine facilities for …
30th July 2020
Employment starting to fall again Weekly payroll data released this week suggest that the recovery in employment has gone into reverse. Between the reference period of the June labour force survey and 11 th July the number of jobs has fallen by 0.5%. …
Initial bounce-back in activity has been stronger than expected But renewed lockdown in Melbourne is weighing on recovery and inflation is slumping We still expect a resumption in asset purchases before long The renewed lockdown in Melbourne is set to …
29th July 2020
Inflation will return in Q3 but will be weak for years The deflation experienced in Q2 is not likely to be a lasting feature of the Australian economic landscape. But we think underlying inflation is likely to remain depressed for years to come. The 1.9% …
Consumption still needs support We learned this week that retail sales in June rose by 2.4%, leaving them up 6.8% on their pre-virus levels. That likely reflects some switching from services which were not available during the lockdown towards goods which …
24th July 2020
Today’s fiscal update was a damp squib as the Treasurer didn’t present fiscal forecasts beyond June 2021 and didn’t unveil fresh fiscal support. While the government’s current forecasts are very close to our own, policymakers will probably unveil …
23rd July 2020
The government will extend the JobKeeper wage subsidy by six months. Unemployment benefits will be made less generous which should encourage many of those having dropped out of the labour force to seek a job. Even so, the JobKeeper extension supports our …
21st July 2020
Net debt to rise to 60% of GDP The government is set to release a Budget update next Thursday ahead of the regular Budget on 6 th October. That will incorporate the sharp deterioration seen in the monthly financial accounts. In May the government racked …
17th July 2020
Unemployment rate close to its peak The labour force rose faster than employment in June, pushing up the unemployment rate. However, we think that employment will soon pull ahead so unemployment probably won’t rise any further . The 218,000 rise in …
16th July 2020
Inflation to fall below RBNZ’s target this year The plunge in headline inflation to 1.5% in Q2 is just the start of the weakness in inflation which is why we expect the RBNZ to launch negative rates early next year. Prices in Q2 fell by 0.5% q/q , in line …
Overview – The renewed virus outbreak in Victoria underlines that the recent strength of the recovery won’t be maintained. We expect output to remain below pre-virus levels until the end of next year. While the labour market has held up better than we …
15th July 2020
Melbourne back in lockdown Melbourne returned into lockdown on Wednesday night as the number of new coronavirus cases hit a record high. (See Chart 1.) Residents are only allowed to leave their house for essential shopping, work and exercise and face a …
9th July 2020
The RBA sounded more optimistic when it left policy settings unchanged today. But with the recovery set to remain bumpy and inflation likely to weaken more sharply than the Bank is anticipating, we still expect the Bank to resume its bond purchases before …
7th July 2020
Online sales surged during the lockdown and rose further even as the Australian and New Zealand economies were opening up again. We suspect online sales will remain high which means measures of physical location may understate the resilience of …
6th July 2020
New virus outbreak in Melbourne The economy bounced back strongly after the end of the lockdown as retail sales surged nearly 17% m/m in May and sales in the majority of categories was above pre-virus levels. (See here .) Admittedly, imports of consumer …
3rd July 2020
Consumption to surge in Q3 Retail sales rose above pre-virus levels in May and probably kept rising in June. As such, a sharp rebound in consumption in Q3 following Q2’s slump is all but guaranteed. However, services spending will probably fare worse and …
Trade may have been a drag on growth in Q2 The trade balance was broadly stable in May but given significant price effects, trade may have been another drag on GDP growth in Q2. The small rise in the trade balance from $7830mn in April to $8025mn in May …
2nd July 2020
House prices to continue their decent in the coming months The further decline in house prices in June is likely to continue in the coming months even as economic activity recovers. We expect house prices to fall by 5-10% over the coming year. House …
1st July 2020
Restrictions on activity have lifted in both countries. (See Chart 1.) While some states in Australia still limit the size of groups and capacity at restaurants, New Zealand has now lifted all domestic restrictions. The reduction in restrictions has …
30th June 2020
Activity and labour market exceeding Bank’s expectations But unemployment set to remain far above pre-virus levels, weighing on wage growth Bank may resume bond purchases at some point, perhaps early next year Given that the economy has coped better with …
It is by no means inevitable that the coronavirus crisis puts a big permanent hole in the supply capacity of economies (i.e. their ability to produce goods and services). With the right government policies, many economies should be able more or less to …
29th June 2020
Almost all restrictions lifted in New Zealand New Zealand has almost entirely eliminated Covid-19 and has removed all domestic restrictions on activity. There have been a handful of cases among returning citizens at quarantine facilities at the border but …
26th June 2020
We estimate that the revenues of firms in most sectors were still too low in mid-June to generate profits. If those conditions persisted, nearly one-third of firms would run out of cash by the end of Q3. However, revenue should recover over coming months …
25th June 2020
The Reserve Bank of New Zealand (RBNZ) sounded fairly balanced when it left policy settings unchanged today. But we still think the Bank will cut rates into negative territory next year. The Bank’s decision to keep rates on hold was correctly anticipated …
24th June 2020
Consumer spending is bouncing back more strongly than we had anticipated. However, that partly reflects pent-up demand and the strong support from government initiatives. Employment income has slumped and we only expect spending to return to pre-virus …
22nd June 2020
Unemployment rate may have peaked Employment fell a further 1.8% in May following the 4.7% decline in April, though we suspect that some of that decline reflects the delayed impact of people being stood down in April rather than fresh job losses. After …
19th June 2020
Unemployment rate should start to fall soon Employment fell further in May but with the economy opening up again it should start to rebound in June. As such, the unemployment rate probably won’t rise any further . The 227,700 plunge in employment in May …
18th June 2020
RBNZ beginning to slow the pace of QE New Zealand economy recovering solidly The RBNZ will hold off until 2021 to launch negative rates to address low inflation The RBNZ has started to reduce the pace of asset purchases as economic activity has recovered. …
Growth was subdued even before the virus outbreak Just one week of New Zealand’s strict lockdown to curb the spread of Covid-19, fell in the first quarter. We therefore expect the hit to GDP to be concentrated in Q2 when the bulk of the lockdown occurred. …
The rising trade tensions between Australia and China in recent weeks are unlikely to meaningfully damage Australian exports. While China may introduce tariffs on Australian coal, it is unlikely to target iron ore and liquefied natural gas. Trade tensions …
16th June 2020
Consumer confidence picks up As the lockdown in Australia has lifted, so too has economic sentiment which should help support the rebound in activity. Indeed, the pick-up in consumer confidence since the lockdown has been eased shows a sharp turn in the …
12th June 2020
The sharp decline in activity in Australia is set to result in much weaker inflation before long. And even though output will recover rapidly over the coming months as virus restrictions are eased, we think that inflation will remain well below the RBA’s …
9th June 2020
Budget Update delayed to reassess JobKeeper Josh Frydenberg has confirmed that the Budget Update due in June will be delayed so that the government has time to reassess the JobKeeper scheme. For what it’s worth, our assessment of the outlook for the …
5th June 2020
The government today unveiled a grant for buyers of new homes. While grants for first-time home buyers boosted home sales during the global financial crisis, the new scheme won’t offset the impact of the border closure on housing demand. We still expect …
4th June 2020
Consumption to rebound but exports to remain weak The slump in retail sales in April should be followed by a strong rebound as restrictions are eased. However, both exports and imports will remain weak as the border closure weighs on services trade. The …
GDP to plummet in Q2 GDP was falling before the bulk of the virus restrictions were in place and is set to fall more sharply in Q2 before picking up gradually in the second half of the year. The 0.3% q/q decline in GDP was a touch less than the Bloomberg …
3rd June 2020
