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The RBA today announced a comprehensive set of measures to combat the disruptions to economic activity and financial markets caused by the coronavirus outbreak. If credit markets remain impaired for longer, the Bank may eventually have to purchase private …
19th March 2020
Unemployment rate will surge this year Today’s data show that the coronavirus did not have a significant impact on the Australian domestic economy in February. Even so, we think the draconian restrictions put in place will result in economic activity …
Growth was subdued even before the virus outbreak The decline in GDP growth in New Zealand in the fourth quarter shows that the economy was struggling even before the Covid-19 outbreak which will surely drag the New Zealand economy into recession in the …
18th March 2020
The draconian coronavirus containment measures adopted by Australia’s government mean that we now expect GDP to fall by 2% this year. The Australian government is likely to respond with a larger fiscal stimulus package than the one announced last week …
While the New Zealand government’s large stimulus package will soften the blow from the coronavirus outbreak, it will not prevent a recession. As such, we still expect the RBNZ to launch quantitative easing in the coming weeks. The government today …
17th March 2020
Australian firms were in good shape on the eve of the coronavirus outbreak, but the impending collapse in foreign tourism and weaker retail spending will lift loan write-offs in those sectors. The banks aren’t as well prepared to weather those loan losses …
New comprehensive restrictions on travel mean that both Australia and New Zealand are headed for recession. We expect the Reserve Bank of New Zealand to follow up today’s emergency 75bp rate cut with quantitative easing before long. And the Reserve Bank …
16th March 2020
Consumption will be weak despite oil price drop The price of Brent crude oil fell sharply from $45 per barrel at the end of last week to US$32 now. We expect prices to gradually recover to around US$48 per barrel by the end of the year. But the key point …
13th March 2020
The large fiscal stimulus package unveiled today may be able to prevent a recession. But we still expect the RBA to cut rates to 0.25% and launch quantitative easing over the next few months. The fiscal stimulus package presented by the federal government …
12th March 2020
We think that the coronavirus outbreak and the related disruptions in China and to tourism more broadly will push the New Zealand economy into recession. That’s why we expect the RBNZ to slash rates by 75bp to help offset the impact of the coronavirus …
11th March 2020
In a moderate scenario where demand returns to pre-coronavirus levels by year-end, we estimate that the outbreak of the disease will knock off 1% from GDP growth this year. In a more severe scenario where the disruptions last beyond the end of the year, …
10th March 2020
Most central banks that have introduced quantitative easing in recent years have done so by pledging to buy a certain amount of government bonds. Our base case is that the RBA will do the same when it launches QE over the coming months, but a yield target …
9th March 2020
Economic outlook grim GDP growth slowed a touch to 0.5% q/q in Q4. And with data from January showing signs of weakness even before the impact of the coronavirus, our forecast that GDP contracted by 0.1% in Q1 is now looking optimistic. The trade surplus …
6th March 2020
Worst is yet to come for retail sector Retail sales fell for the second consecutive month in January. And given that this happened before the coronavirus started to spread in Australia in earnest, the outlook for consumption remains weak. The 0.3% m/m …
We expect the Treasury to announce only a small fiscal package of around $2bn in response to the coronavirus outbreak. With economic activity slowing sharply and revenues undershooting expectations, that should be enough to thwart the government’s aim of …
5th March 2020
Worst is yet to come for trade The small decline in the trade surplus in January masks larger weakness in both export and import values. And we think the coronavirus outbreak means that exports have further to fall in the coming months . The trade surplus …
GDP growth will weaken further in 2020 GDP growth remained subdued at the end of last year, and given the fallout from the coronavirus outbreak we expect the economy to deteriorate further in 2020. The 0.5% quarterly rise in GDP was a touch faster …
4th March 2020
With the impact of the coronavirus on economic activity set to intensify, we expect the RBA to follow up today’s 25bp rate cut with another 25bp cut in April. It looks increasingly likely that the disease will weigh on the labour market, which raises the …
3rd March 2020
In light of the accelerating spread of the coronavirus – and the economic disruption that is likely to follow – we are pulling down our GDP growth forecasts for Q1 and Q2 of this year. Growth is likely to rebound over the second half of the year, but most …
2nd March 2020
The slump in China’s PMIs in February and the continued spread of the coronavirus beyond China has raised the odds that the RBA will cut interest rates at tomorrow’s meeting. On balance though, we still think the Bank will wait until April before cutting …
House prices may rise by 10% this year The rally in house prices continued in February and all the leading indicators suggest that prices will keep rising at a rapid pace. However, affordability is deteriorating rapidly and we expect price growth to slow …
Mixed bag of data for private investment The capex survey in Q4 provided mixed news for private investment. The survey showed the sharpest fall in real capital expenditure since 2016. Admittedly, the construction work done data, which were also released …
28th February 2020
Drag from private investment will fade by the middle of this year We estimate that investment fell sharply, by 1.5% q/q in Q4. But firms’ expectations of a pick-up in nominal capital expenditure in the next financial year suggest the drag from private …
27th February 2020
We estimate GDP growth in Australia continued to muddle along in Q4, edging up from 0.4% q/q in Q3 to 0.5% q/q. In New Zealand, we think a stronger contribution from net trade was offset by a decline in inventories and softer consumption growth, causing …
26th February 2020
We estimate that the disruptions to China’s economic activity in the wake of the coronavirus will reduce Australia’s total exports by 3% this month. The drag from fewer Chinese students and tourists arriving in the country could reduce exports by another …
25th February 2020
Bank remains concerned that cutting rates further will undermine financial stability But coronavirus outbreak set to dampen activity and unemployment will climb further We’ve pencilled in a 25bp cut in April and July The Reserve Bank of Australia remains …
Unemployment rate jumps to 5.3% The unemployment rate jumped in January from 5.1% at the end of 2019 to 5.3%. And that’s despite the ABS excluding the areas of Australia that were worst hit by the bushfires. It’s possible that the number of unemployed …
21st February 2020
Unemployment rate may rise to 5.5% The jump in the unemployment rate in January probably isn’t enough by itself to convince the RBA to cut rates. But we think the weakness in the underlying economy will keep pushing the unemployment rate higher in the …
20th February 2020
Wage growth set to slow further Wage growth remained subdued in the fourth quarter and we expect it to weaken further over the coming quarters. That should eventually convince the RBA to cut interest rates to 0.25%. The 0.5% quarterly rise in the wage …
19th February 2020
Travel ban extended until February 22 nd The ban on travel from China to Australia was set to end this weekend. But given the continued growth in infections of the coronavirus in China it has now been extended to 22 nd February. That’s not particularly …
14th February 2020
Rising housing wealth may encourage households to spend a larger share of their incomes. But we expect income growth to weaken again as jobs growth slows and rising unemployment keeps a lid on wage growth. The upshot is that consumption growth may remain …
13th February 2020
The New Zealand government’s $12 billion infrastructure package should contribute to a pick-up in business investment and GDP growth from the second half of this year. That supports our view that interest rates have now reached a trough in New Zealand. We …
The Reserve Bank of New Zealand sounded confident when it left rates on hold today and we think the improvement in underlying economic conditions means the RBNZ’s easing cycle is now over. The Bank’s decision to keep rates on hold was correctly …
12th February 2020
The RBA may yet cut rates to 0.25% in response to the drag on economic activity from the bushfires and the coronavirus. But with domestic demand rebounding as the housing slump has turned to boom, the urgency to support the economy has diminished. The RBA …
10th February 2020
Growth in Q4 set to remain subdued The decline in retail sales in December is consistent with our view that the surge in sales in November was driven by Black Friday discounts. After adjusting for price effects, real retail sales rose by 0.5% in Q4, the …
7th February 2020
The ultimate impact of the coronavirus outbreak in China on the Australian economy will depend on how quickly the virus is brought under control. But given the disruption that has already happened to tourism and to Chinese demand for Australian goods …
6th February 2020
GDP growth in Q1 probably remained subdued The pick-up in real retail sales provides some hope that consumption growth may have turned a corner. Even so, we still think GDP growth remained subdued at the end of 2019. Retail sales values fell by 0.5% m/m …
Coronavirus will hit the New Zealand economy in the near term. But indicators point to an improvement in economic activity. So we think the RBNZ is done cutting rates. The new coronavirus will inevitably impact the New Zealand economy in the first quarter …
5th February 2020
Lower unemployment rate should keep RBNZ on hold The decline in the unemployment rate to 4.0% in New Zealand all but ensures that the RBNZ will keep rates on hold in February. And given that we forecast employment growth to rise in 2020 , we think the …
4th February 2020
The Reserve Bank of Australia (RBA) sounded cautious when it left rates on hold today and we think persistent weakness in the underlying economy will force the Bank to cut interest rates to 0.5% in April. The decision to leave rates on hold at 0.75% was …
Even though house prices in Sydney and Melbourne plunged during the housing downturn, the house price to earnings ratio in both cities is still 40% higher than it was a decade ago. However, we think that housing is only moderately overvalued at the moment …
3rd February 2020
House price growth may be approaching a peak House prices continued to surge in January. But our sales to new listings ratio suggests that price growth may be approaching a peak. That’s consistent with our forecast for price growth to moderate this year. …
A combination of optimism about the prospect of a US-China trade deal and some better than expected economic data temporarily halted the decline in the Australian dollar towards the end of last year. Even so, the services balance surged into surplus in Q4 …
31st January 2020
Housing costs will boost inflation this year Headline inflation edged higher in Australia from 1.7% in Q3 to 1.8% in Q4. But trimmed mean and weighted median inflation remained stable and core inflation (excluding food and energy) declined from 1.9% to …
Falling unemployment allows Bank to keep rates unchanged in February But GDP growth set to fall short of expectations and wage growth still soft More easing will be needed to meet the inflation target The further fall in the unemployment rate in December …
29th January 2020
Underlying inflation should fall further below target in 2020 The pick-up in headline inflation in Q4 should be the final nail in the coffin for hopes of a February rate cut. Even so, weak economic activity should force the bank to cut rates again before …
Upbeat labour market may delay rate cut The labour market has remained solid despite subdued economic activity. Employment rose by 28,900 in December, far exceeding analysts’ expectation of a mere 10,000 pick-up. The unemployment rate fell for the second …
24th January 2020
Strong inflation should mark the end of the RBNZ’s easing cycle The strong rise in headline inflation from 1.5% in Q3 to 1.9% in Q4 should be enough to prevent the RBNZ cutting rates in February. And given that we now expect a strengthening in economic …
23rd January 2020
Fall in unemployment gives RBA breathing space The fall in the unemployment rate to a nine-month low shows that monetary and fiscal stimulus is starting to work and reduces the pressure on the RBA to cut interest rates. The 28,900 rise in employment was …
We doubt that the bushfire crisis will prompt a major shift in the Australian government’s attitude towards the mining industry. But the sector’s importance is set to decline either way as mining investment has slumped and a structural slowdown is …
21st January 2020
