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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
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
