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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
The RBA sounded cautiously optimistic when it left policy settings unchanged today, but we still think that it will expand government bond purchases soon. The RBA surprised no one by keeping both the target for the cash rate and the target for 3-year …
2nd June 2020
Australia’s gross government debt/GDP ratio will hit the highest level since WWII by 2022/23. While the budget deficit will narrow again over the coming years as tax revenues rebound and stimulus measures expire, it will remain consistent with rising debt …
1st June 2020
House prices have further to fall We think the small decline in house prices in May marks the start of a larger downturn. We expect house prices to fall by 5-10% in the coming months. House prices across the eight capital cities fell by 0.2%m/m in May, …
As the lockdowns have largely come to an end in both countries, output is starting to recover. In New Zealand, most activity is now allowed to resume, though gatherings are limited to 100 people. In Australia, states are easing restrictions at different …
29th May 2020
Slump in revenue will widen budget shortfall The Treasury last week discovered that many of the firms applying for its JobKeeper wage subsidy had filled out the application form wrongly. As a result, the Treasury now estimates that only 3.5mn workers …
Capital investment to plunge over the coming year We estimate that private investment was broadly flat in Q1, but firms’ expectations of future capital expenditure point to a sharp downturn in investment in the coming months. Today’s private capital …
28th May 2020
Previous government bond purchases were focused on restoring liquidity Unemployment is rising and inflation set to slump Bank may launch fresh round of purchases focused on lowering long-term rates We suspect that the Reserve Bank of Australia will keep …
26th May 2020
Record slowdown in retail spending The preliminary estimate of a 17.9% m/m fall in retail spending in April marked the steepest decline on record. But that fall overstates the weakness in retail spending. Given retail sales spiked by 8.5% m/m in March, …
22nd May 2020
Investors are not increasing their demand for housing and even if they did, owner-occupiers account for 70% of overall housing demand. The upshot is that investors won’t prevent house prices from falling 5-10% in the coming months. Some commentators have …
20th May 2020
Unemployment may not rise all that much The 4.6% m/m fall in employment in April was broadly in line with our forecast, but due to an unprecedented slump in the participation rate, the unemployment rate only rose from 5.2% to 6.2%. Over the coming months, …
15th May 2020
The additional $16bn of spending in today’s Budget along with a relatively fast relaxation of the Covid-19 restrictions should reduce the number of job losses in New Zealand. Add in a sharp reduction in labour force participation, and we now think the …
14th May 2020
Unemployment rate set to approach 10% The small rise in the unemployment rate in April masks a sharp fall in employment and we still expect the unemployment rate to rise further over the coming months . The 594,000 fall in employment in April was broadly …
The Reserve Bank of New Zealand (RBNZ) massively expanded its annual target for asset purchases at its meeting today and we still think the Bank will cut rates into negative territory before long. The Bank’s decision to keep rates on hold at 0.25% was …
13th May 2020
Wage growth set to slow sharply The stability in wage growth in Q1 tells us little about the impact of the virus outbreak on the labour market and a sharp slowdown over the coming quarters is likely . The cutoff date for the Q1 wage price index survey was …
The border closure will result in a collapse in revenue from foreign tourists and a marked fall in revenue from foreign students in Q2. And while the government will probably allow foreign students to enter the country before long, tourism revenue is set …
12th May 2020
Government expects return to normality by July PM Morrison outlined the government’s three-stage plan to restart the economy on Friday. In the first stage, schools will reopen and restaurants and cafes will be able to serve up to 10 people at a time. In …
8th May 2020
Economic activity in New Zealand has started to rebound after its severe lockdown has come to an end. But there are a number of reasons why output won’t return to normal anytime soon. New Zealand moved from a severe level 4 lockdown that restricted …
7th May 2020
Surge in exports won’t last long The massive rebound in exports in March is hardly surprising given the impact of a cyclone in February but we think weakness in global demand will weigh on export growth in the coming months. The rise in the trade balance …
