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Trade deal not great news for Australia Phase one of the US-China trade deal was signed this week which marks an end to the first phase of the trade war. (See here for detailed coverage.) It removes the downside risk of imminent further escalation which …
17th January 2020
Overview – Australia’s house prices may rise by 8% this year but consumers are still reeling under high debt loads. With growth set to fall short of potential, we still expect unemployment to rise further which should weigh on wage growth and underlying …
16th January 2020
Banks’ housing lending standards remain tight. But this hasn’t prevented housing arrears from climbing to fresh highs as household balance sheets are stretched. And given that we expect the unemployment rate to creep higher and income growth to remain …
15th January 2020
Net trade probably bolstered growth in Q4 External trade data for November released this week showed a sharp improvement in the trade balance supported by a rise in export values while import values declined. The rise in export values is particularly …
10th January 2020
Surge in retail sales unlikely to herald spending spree The strongest rise in retail sales in two years could be a sign that tax refunds and interest rate cuts are finally boosting spending. But with consumer confidence falling to fresh lows, we doubt it …
Trade should provide a much-needed boost to growth in Q4 The sharp rise in the trade balance in November is consistent with the contribution from net exports to GDP growth rising sharply in the fourth quarter but the weakness in imports suggests domestic …
9th January 2020
The deadly bushfires that are ravaging Australia are first and foremost a human tragedy. But there are economic effects to consider, too. We suspect that the impact on consumption and working hours will be negligible, while firefighters working longer …
7th January 2020
Housing market going from strength to strength With bushfires still roaring across large parts of the country, the economic data are naturally taking a backseat. This week we learned that house price growth slowed from 1.9% m/m in November to 1.4% m/m in …
3rd January 2020
House price growth to remain strong for now With home sales climbing to a fresh high, our sales to listings ratio now suggests that house prices will soon be rising by around 10% per annum. House price growth across the eight capital cities slowed from …
2nd January 2020
Australia’s labour market broadly stable The minutes of the RBA’s December meeting noted that “it would be important to reassess the economic outlook in February 2020, when the Bank would prepare updated forecasts”. The Board noted that “it would be …
20th December 2019
Annual GDP growth in Australia has probably bottomed out already but we expect growth to remain below potential in 2020. As such, jobs growth will probably not be strong enough to absorb the expansion in the labour force and we expect Australia’s …
19th December 2019
Unemployment rate to rise further The renewed drop in the unemployment rate in November reduces the pressure on the RBA to cut interest rates but we still expect the labour market to soften furthe r. The 39,900 jump in employment in November was stronger …
Rebound in growth unlikely to last The rebound in GDP growth in New Zealand in the third quarter is unlikely to be sustained as soft consumer and business confidence limit the pick-up in growth. Production GDP growth surged from a downwardly revised 0.1% …
Australia’s government pledged to increase spending in today’s Budget update. And its pessimistic forecasts for nominal GDP growth suggest that tax revenue may continue to surprise on the upside, leaving scope for additional fiscal stimulus in the …
16th December 2019
Business and consumer confidence both drop The survey data released this week support our view that the Australian economy will struggle to gain momentum next year. Business confidence dropped from 2.0 to 0.1 in November and is only fractionally above the …
13th December 2019
We think that GDP growth in both Australia and New Zealand will fall short of expectations, forcing both the RBNZ and the RBA to cut interest rates more sharply than most expect. The consensus is that both the Kiwi and the Aussie dollar will strengthen …
10th December 2019
Household spending remains the Achilles heel The RBA kept interest rates unchanged at the meeting that occurred one day before the release of the Q3 GDP data and reiterated that the economy had reached a “gentle turning point”. At first glance, the …
6th December 2019
The Reserve Bank of New Zealand’s decision to leave mortgage lending restrictions unchanged and tighten capital requirements means that lending and house prices are unlikely to surge in 2020. As such, concerns about financial stability won’t prevent the …
5th December 2019
Net trade the bright spot as consumption set to remain subdued The stagnation in retail sales in October suggests that consumption growth remained sluggish in the fourth quarter. And while net exports should continue to support GDP growth, the weakness in …
Growth will continue to disappoint GDP growth fell short of expectations in the third quarter and we think it will remain much weaker than most anticipate. As such, we reiterate our view that the RBA will cut interest rates in February and April and …
4th December 2019
The RBA turned more optimistic when it kept rates unchanged today but we think that further stimulus will be required before long. We reiterate our long-held view that the Bank will cut rates to 0.25% next year and will launch quantitative easing in the …
3rd December 2019
House price growth to ease in 2020 Our sales to new listings ratio suggests that house price growth will moderate before long . Even so given the sharp increase in recent months, we now expect prices to rise by around 7% in 2020 and 5% in 2021. The 2.0% …
2nd December 2019
Higher bar for QE will be reached before long In a much-anticipated speech this week Reserve Bank of Australia Governor Lowe laid out the Bank’s thinking around unconventional monetary policy. For the most part, the speech confirmed our existing views. …
29th November 2019
Private investment to fall further The renewed decline in machinery and equipment investment in the third quarter is consistent with the sharpest quarterly fall in private investment in three years. And we expect private investment to remain a drag on …
28th November 2019
Economic data have been weak but RBA will wait for Q3 GDP data before cutting Subdued growth and inflation will force the RBA to cut rates to the 0.25% floor in 2020 Governor Lowe set a higher bar for QE but we expect that bar to be reached next year The …
27th November 2019
The recent weakness in productivity is largely cyclical and reflects the slump in homebuilding. While Australia probably won’t be a frontrunner in the digital revolution, we expect labour productivity growth to pick up from 0.8% over the past decade to …
25th November 2019
Government stimulus underwhelming The government appear to have had a change of heart with PM Scott Morrison this week promising additional stimulus in the Mid-Year Economic and Fiscal Outlook (MYEFO), which is usually released in mid-December. The …
22nd November 2019
The decline in bond yields in Australia and New Zealand throughout 2019 has paused in recent months following optimism about a potential trade deal between the US and China and hawkish language from the Fed. But we think that bond yields in both countries …
21st November 2019
The recent surge in stock buybacks has largely been driven by mining and financial firms and therefore can’t explain the weakness in non-mining investment. Non-mining profit growth should rebound a little over coming quarters as domestic demand picks up a …
18th November 2019
Spare capacity in the labour market to rise We wouldn’t read too much into October’s largest fall in employment in three years. The data are volatile and a renewed rise in November is likely. Even so, the labour market is clearly deteriorating. The …
15th November 2019
Unemployment rate to rise further The sharp fall in employment will be causing concern for the RBA and we think the unemployment rate has further to rise in the coming months. The sharp 19,000 fall in employment in October was the largest decline in three …
14th November 2019
The Reserve Bank of New Zealand sounded cautious when it left rates on hold today and we believe that a deterioration in the economy will force the Bank to 0.5% by early next year. We were one of the five forecasters polled by Bloomberg who correctly …
13th November 2019
Wage growth will slow to 2.0% soon The slowdown in wage growth in the third quarter doesn’t come as a complete surprise to the RBA and we still expect the Bank to wait until February before cutting rates again. The 0.5% quarterly rise in the wage price …
GDP growth to remain subdued This week we got a clear indication there has not been a strong rebound in economic growth in the third quarter as policymakers were hoping. Admittedly, before the release of the September trade data we had pencilled in a 0.4 …
8th November 2019
By signalling that inflation will remain below the lower end of its 2-3% target band for the foreseeable future, the RBA signalled that further easing is on the cards. Our view remains that the Bank will cut rates to 0.25% and launch quantitative easing …
Net trade should support trade over coming quarters Net trade probably didn’t bolster GDP growth in the third quarter which adds to the evidence that GDP growth slowed in Q3. And weaker capital goods imports suggest that the slump in business investment …
7th November 2019
Economic data has been in line with RBNZ forecasts… …so we think the Bank will hold for now. But sustained economic weakness means rates will be cut to 0.5% next year. The economic data have been better than the Bank anticipated in their last set of …
6th November 2019
Rise in the unemployment rate not a big deal for the RBNZ The rise in the unemployment rate to 4.2% in Q3 only reverses the decline in Q2 so we doubt the RBNZ will be too worried at this stage. The 0.2% q/q increase in employment was lower than the …
5th November 2019
The RBA reiterated its view that the economy had reached a gentle turning point when it left rates unchanged today. However, we think that the Bank’s forecasts for GDP growth and the labour market remain too optimistic and we expect the Bank to cut rates …
Our central scenario is that cutting interest rates to 0.5% will be enough to weather the economic slowdown in 2020. And if required, fiscal policy and macroprudential tools could be used to help stimulate demand. However, if the global economy slows more …
Consumption to remain subdued The decline in real retail sales in the third quarter suggests that consumption growth remained subdued. And with the bulk of the tax refunds already paid, the outlook for the fourth quarter isn’t great either. The 0.2% m/m …
4th November 2019
Goods inflation climbs to 10-year high The inflation data released this week were stronger than we had anticipated. Core market services inflation duly weakened from 1.3% to 1.2% as the looser labour market probably restrained wage growth. But core market …
1st November 2019
House price growth to ease in 2020 Our sales to new listings ratio suggests that house prices will continue to surge in the coming months before moderating in the new year . We expect prices to rise by 5% in 2020 and 2021. The 1.2% rise in CoreLogic’s new …
In its latest World Economic Outlook, the IMF predicted Australia’s economy to expand by 1.7% in 2019 and by 2.3% in 2020. While the 2019 forecast is consistent with our own expectations, their forecasts assume a larger bounce in GDP growth next year than …
31st October 2019
Despite rebound in house prices, GDP growth set to remain subdued Rising unemployment will push underlying inflation further below 2% We now expect the Bank to cut rates to 0.25% and launch quantitative easing next year Falling unemployment and steady …
30th October 2019
Underlying inflation to ease further below RBA’s target While inflation edged up in Q3 we think the weakness in economic activity will cause it to fall again before long, prompting further easing by the RBA. Consumer prices increased by 0.5% q/q in Q3, in …
We estimate that the participation rate will rise by around 0.35ppt per annum over the next couple of years. That means that the economy needs to create around 300,000 additional jobs per annum to absorb the expansion in the labour force from a higher …
29th October 2019
Australia could have its cake and eat it too The new secretary to the Australian Treasury, Steven Kennedy, has pushed the RBA’s hopes for fiscal stimulus slightly further out of reach by endorsing the government’s current fiscal policy settings. He said …
25th October 2019
We estimate that a fiscal stimulus equivalent to 1.5% of GDP would still be consistent with maintaining Australia’s AAA-rating. Unfortunately, fiscal policy probably won’t come to the rescue, leaving the onus to support demand on the RBA. The slowdown in …
23rd October 2019
Underlying inflation was moored well below the lower end of the RBA’s 2-3% target band even as the housing market was booming and the labour market was tightening. With the unemployment rate set to rise to 5.5% next year and interest rate cuts …
21st October 2019
