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Underlying inflation set to weaken further The Reserve Bank of Australia will have breathed a sigh of relief after the unemployment rate dipped from 5.3% to 5.2% in September despite the fact that job growth slowed. And the minutes of the Bank’s October …
18th October 2019
Unemployment set to rise again before long The RBA will breathe a sigh of relief after the unemployment rate declined in September. But we think it won’t be long before unemployment starts to rise again, forcing the RBA to provide additional stimulus. The …
17th October 2019
Easing headline inflation not yet a concern for the RBNZ The decline in headline inflation from 1.7% in Q2 to 1.5% in Q3 is unlikely to concern the RBNZ as it was still above their forecast in August. But we think subdued activity will mean that …
16th October 2019
Overview – The end of the housing downturn has reduced the risk of a recession and we expect GDP growth in Australia to edge up from 1.7% this year to 2.0% in 2020. However, that’s still well below potential and we expect the unemployment rate to climb …
15th October 2019
Waning confidence Business and consumer confidence data released this week provided yet another signal that economic activity in Australia is set to remain weak in the coming quarters. Following the May election, business confidence surged, probably …
11th October 2019
We now expect growth in New Zealand to ease from 2.2% in 2019 to 1.5% in 2020. Along with a rising unemployment rate, weak economic activity will prompt the RBNZ to cut rates twice next year. Growth in New Zealand has gradually eased over 2019 as weak …
9th October 2019
Once interest rates approach their lower bound, the RBA could provide long-term loans to banks and link their interest rate to the amount of new lending those banks undertake. However, if the Bank decided more stimulus was needed, we still think that …
7th October 2019
Stimulus running into diminishing returns The RBA cut interest rates to 0.75% on Tuesday as most had anticipated. It put more emphasis than usual on its intention to achieve full employment. In June, the Bank revised down its estimate of the unemployment …
4th October 2019
Tax cuts not having much of an effect so more stimulus is needed Retail sales growth remained subdued in August despite the government’s tax cuts which suggests that economic activity did not recover strongly in the second half of 2019. The 0.4% m/m rise …
Trade will only provide a modest boost to growth in Q3 The narrowing in the trade surplus in August was mostly driven by a decline in export prices so we doubt that net trade will be a drag on GDP growth in Q3. Even so, we estimate that the contribution …
3rd October 2019
We still believe that the unemployment rate would have to fall to 4.0% to meet the RBA’s definition of full employment. With the actual unemployment rate now at 5.3% and rising, that means that the RBA has more work to do. We reiterate our forecast that …
2nd October 2019
The RBA cut interest rates to 0.75% as widely anticipated and we think it will lower rates to 0.5% by the end of the year. Rates approaching the zero lower bound will inevitably invite speculation about quantitative easing but the RBA’s forceful response …
1st October 2019
House prices recovery to continue The 10% annualised rise in house prices in September is unsustainable in light of sluggish income growth. We expect prices to rise by a slower 5% in 2020 and 2021. The 1.1% m/m rise in house prices in the eight capital …
Economic growth has continued to ease in both countries in the first half of 2019. In Australia, GDP growth eased to 1.4% y/y in Q2. And while the government’s tax cuts may mean that consumption supports a pick-up in growth in the coming months, the …
30th September 2019
Interest rates cut around the world The Reserve Bank of New Zealand kept interest rates on hold at 1.0% this week following the dramatic 50 basis point cut in August. The decision to leave rates on hold was in line with market expectations and the analyst …
27th September 2019
The Reserve Bank of New Zealand sounded more comfortable with its position when it left rates on hold today but we still think the Bank will cut rates to 0.75% by early next year. The decision to leave rates unchanged at 1.0% following the dramatic 50 …
25th September 2019
Labour market still set to ease further But outlook for GDP growth has improved as house prices have started to rebound Forceful policy response lowers likelihood of unconventional policy being deployed The continued rise in the unemployment rate will …
24th September 2019
Close but no cigar This week the government revealed that in the 2018/19 fiscal year the budget remained in deficit. The deficit was just $690 mn, rounding to 0.0% of GDP, much smaller than the $4.2 bn or 0.2% of GDP deficit that was forecast in the April …
20th September 2019
Economic activity in Q2 was in line with RBNZ forecasts… …so we think the Bank will hold for now. But sustained economic weakness means rates will be cut to 0.75% by early next year. Following the dramatic 50 basis point cut in August, we suspect the …
19th September 2019
Higher unemployment rate puts pressure on RBA The unemployment rate rose to 5.3% in August and we think a slowing in employment growth should drive the unemployment rate even higher, to 5.4% by the end of the year. Employment rose by a solid 34,700 in …
Growth to remain soft in 2019 Following the slowing in annual GDP growth in Q2, we suspect that economic activity will remain subdued throughout 2019 as soft business conditions and weak global growth weigh on growth. Production GDP growth eased to 0.5% …
Stimulus will overcome low confidence This week’s consumer confidence and business confidence releases were disappointing as both dropped in the latest reading. (See Chart 1.) At first glance, that’s a worrying sign given the support from the RBA’s tax …
13th September 2019
The trade war has probably lowered Chinese demand for Australian exports by curbing investment in factories and warehouses. But the trade tensions have contributed to the weakening of the Australian dollar, which is boosting net trade. While a further …
11th September 2019
The recent strong pace of house price gains is unlikely to last as income growth is set to remain subdued. We expect house prices to rise by around 5% next year and in 2021. A rebound in house prices is good news for vehicle and furniture sales, but …
9th September 2019
Tax cuts will have an impact soon enough The 0.5% q/q rise in GDP in the second quarter was stronger than we had anticipated. Admittedly, that strength was partly driven by an outsized 0.6 ppt contribution from net exports. But there was also a 0.5ppt …
6th September 2019
Trade won’t provide a large boost in Q3 The narrowing in the trade surplus in July was probably driven by a decline in export volumes so we doubt that net trade provided much of a boost to GDP growth in Q3. The trade balance eased from a downward revised …
5th September 2019
Growth to remain subdued The solid rise in GDP in the second quarter shows that Australia’s economy has come through the housing downturn with cuts and bruises but hasn’t faltered. Even so, we only expect a sluggish recovery . The 0.5% quarterly rise in …
4th September 2019
The RBA sounded a little more optimistic when it left interest rates unchanged at today’s meeting. But with external headwinds intensifying and the labour market set to weaken further, we still expect the Bank to cut interest rates to 0.5% over the coming …
3rd September 2019
Consumption growth should pick up in the second half of the year The weakness in retail sales isn’t too concerning as most households wouldn’t have received their tax refunds by the end of July. We therefore still expect that GDP growth bottomed out in …
At the start of the year, we were a lone voice forecasting that the Australian dollar would decline to US$0.65 by year-end. The Australian dollar has come under increasing pressure this month on a number of fronts. Trade tensions have continued to ramp up …
2nd September 2019
House prices will keep rising, and fast The 0.8% m/m rise in house prices in August means the housing market is now in full rebound. We expect prices to rise by 5% from their trough this year, and by 10% in 2020 supported by low interest rates and easing …
Iron ore price fall ends the party before it starts We estimate that the current account reached a surplus in the second quarter for the first time in more than 40 years. (See Chart 1.) That extraordinary achievement was made possible by the rally in iron …
30th August 2019
Outlook for capital spending improves The rebound in machinery and equipment investment won’t be enough to offset a slump in construction activity and private investment probably fell the most since 2016 in the second quarter. However, firms have become …
29th August 2019
RBA to leave rates unchanged in September But renewed increase in unemployment should prompt the Bank to cut in November Conditions need to deteriorate much further for RBA to launch QE The Reserve Bank of Australia hasn’t learned much on the state of the …
27th August 2019
Growth in the money supply has picked-up in Australia but we don’t think the money supply has much of a relationship with economic activity. Even so, banks have started to ease lending standards which should support credit growth and support economic …
26th August 2019
Inverted yield curve Investors have had their feathers ruffled by the decline of 10-year government bond yields below 2-year government bonds yields in the US. That inversion of the yield curve is seen by many as a signal of an impending recession. …
23rd August 2019
Loan losses have remained low throughout the housing downturn but we suspect that they will pick up soon, driven by higher write-offs on corporate loans. However, loan losses tend to lag changes in lending standards. With the Royal Commission now behind …
22nd August 2019
A lower cost of funding via foreign liabilities, a higher return on overseas assets and falling capital goods imports should all support Australia’s current account over the next couple of years. However, we think that those tailwinds will all be …
20th August 2019
Strong jobs growth unlikely to last The RBA’s latest Statement on Monetary Policy highlighted the tension between soft income and GDP growth on the one hand and strong employment growth on the other hand. We’ll have to wait until early September to find …
16th August 2019
Labour market to deteriorate further this year The strong rise in employment in July failed to make any inroads into the pool of unemployed workers. Employment growth is set to falter, pushing up the unemployment rate further before long. The 41,100 …
15th August 2019
Wage growth will fall to 2% next year Wage growth treaded water in the second quarter and the recent loosening of the labour market suggests it will fall to 2% before long. The 0.6% q/q rise in the wage price index in Q2 was a touch stronger than the …
14th August 2019
The recent slump in dwelling starts means that housing supply will fall short of demand from next year. That suggests that house prices will continue to rise over the coming months. The number of newly-built houses has outstripped the demand from …
8th August 2019
RBNZ cuts while RBA holds In Australia, the RBA kept rates on hold at 1.0% this week, as widely expected. But the Bank acknowledged that the uncertainty generated by the trade war had increased and noted that it would “ease monetary policy further if …
The Reserve Bank of New Zealand cut rates dramatically to 1.0% at today’s monetary policy meeting. But given our more pessimistic forecasts of the New Zealand economy, we don’t think that the Bank is done easing and now expect it will cut rates again in …
7th August 2019
The RBA adopted an easing bias when it left interest rates unchanged today. With the labour market set to loosen further, we expect the Bank to slash rates to 0.5% by early-2020. The RBA’s decision to leave interest rates unchanged at 1.0% was correctly …
6th August 2019
Net trade will continue to be the main driver of Australian growth We estimate that net trade boosted GDP growth in Q2, providing a glimmer of hope amidst the bleak domestic outlook. The trade balance surged from an upwardly revised surplus of $6173mn in …
Strength in the labour market won’t last long The sharp fall in the unemployment rate is unlikely to prevent the RBNZ from cutting rates tomorrow given that labour market data are volatile and often prone to revision. What’s more, we expect the …
Hopes of strong rebound dashed Data released this week provide further evidence that the economy is performing below capacity. Admittedly, house prices appear to be bottoming out. Average house prices in the eight capital cities edged up in July. What’s …
2nd August 2019
Consumption growth remained weak second quarter The weakness in real retail sales in Q2 suggests consumption growth remained sluggish in the second quarter. That’s one reason why we expect GDP growth to slow from 2.8% in 2018 to just 1.5% this year. …
The New Zealand economic outlook remains sour… …And the RBNZ have signalled they are ready to act Rates will be cut in August and again in November The Reserve Bank’s Monetary Policy Committee sounded almost ready to cut rates at its last meeting in June. …
1st August 2019
