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Housing downturn may be bottoming out House prices appear to be bottoming with an average increase in prices across the eight capital cities in July. We expect prices will remain around this level for the rest of 2019 before rising by 3% in 2020 and 5% in …
1st August 2019
The RBA will pause in August following back to back rate cuts… …But given the weakness in the economy, the RBA will cut rates to 0.5% by early 2020 Lowe may be venturing into the world of forward guidance We expect the Reserve Bank of Australia to take a …
31st July 2019
Underlying inflation to fall further below RBA’s target Underlying inflation remained subdued in the second quarter and we think increasing spare capacity in the Australian economy means it will fall further below the RBA’s 2-3% target over the next year. …
The slowdown in domestic economic activity along with global trade tensions is becoming more of a concern for businesses in both countries. That means that sentiment has not been bolstered by the stimulus that has been injected into each economy. Lower …
30th July 2019
Is the inflation target still fit for purpose? Treasurer Josh Frydenburg revealed this week that he is currently reviewing the RBA’s inflation target in preparation to sign the Statement on the Conduct of Monetary Policy, along with Governor Lowe. The …
26th July 2019
Commercial banks in New Zealand have kicked up a fuss over a proposal by the Reserve Bank to increase the level of capital the banks are required to hold. By contrast, we believe the new rules won’t result in a major increase in bank lending rates or a …
25th July 2019
Australia’s corporate tax rate remains one of the highest in the world. However, the boost to GDP growth from lowering it towards the levels seen elsewhere would probably be quite small. The government has started to reduce the corporate tax rate from 30% …
24th July 2019
The federal government has urged state governments to step up infrastructure spending. But given the deterioration in their finances, we suspect that states are more likely to reduce capital spending. Urban Infrastructure Minister Alan Tudge indicated …
22nd July 2019
Slump in gas prices a major concern Reports this week have suggested that the United States will overtake Australia and Qatar to become the world’s biggest exporter of liquefied natural gas (LNG) by 2024. Gas production has soared in recent years, …
19th July 2019
Labour market to deteriorate further this year We think the slowdown in employment growth has further to run and suspect that the deterioration in the labour market will cause the unemployment rate to rise before the year is out. Employment was almost …
18th July 2019
Our central scenario is that cutting interest rates to 0.5% will be sufficient to restore growth and eventually return underlying inflation to the RBA’s target. If more stimulus were required, the government would probably remain reluctant to loosen …
17th July 2019
Underlying inflation won’t pick up much from here We doubt the strength in inflation in Q2 will be maintained for long and we expect underlying inflation to remain below the mid-point of the RBNZ’s 1-3% target band for the foreseeable future. That’s why …
16th July 2019
Don’t hold your breath for a big rebound At the start of the year, we forecast that the housing downturn would weigh on consumption growth and residential construction causing GDP growth to slow much more sharply than the consensus believed. (See here .) …
12th July 2019
Overview - Australia’s housing downturn will probably come to an end towards the end of the year. That means that the drag from falling housing wealth on consumer spending will subside. It also means that homebuilding will become more attractive again. …
10th July 2019
RBA reiterates call for fiscal stimulus The RBA cut rates by 25bp to 1.0% on Tuesday. Following the 25bp cut in June, that marked the first time the RBA has delivered back to back rate cuts since 2012. With rates approaching the zero lower bound, Governor …
5th July 2019
Consumption growth to remain soft in the second quarter The weakness in retail sales so far in Q2 suggests consumption growth remained sluggish in the second quarter. Sluggish consumption is one reason why we expect GDP growth to slow from 2.8% in 2018 to …
4th July 2019
Record trade surplus provides a little support to net exports in Q2 The record trade surplus in May was supported by the recent surge in iron ore prices so will not completely flow through to stronger net exports in Q2. Even so, we expect net trade to …
3rd July 2019
While the RBA lowered the cash rate to 1.0% at today’s meeting, it signalled that it won’t ease policy any further for now. However, we think that the Bank remains too optimistic about the outlook for the labour market and inflation. Accordingly, we’ve …
2nd July 2019
The subdued global outlook and weakness in domestic economic activity has caused us to revise down our forecasts for interest rates in Australia and New Zealand. In Australia, annual GDP growth slowed to just 1.8% in the first quarter of 2019 and the …
1st July 2019
Prices may rise in 2020 We expect the pace of house price declines will continue to gradually ease this year with house prices reaching a trough by the end of the year. We suspect house prices may start to rise again thereafter, by 3% in 2020 and 5% in …
Dovish RBNZ As expected, the RBNZ kept the official cash rate on hold at 1.50% this week. But given the Bank’s dovish tone and our downbeat forecasts for New Zealand’s economy, we now think the RBNZ will cut rates twice this year. (See here .) Admittedly, …
28th June 2019
The RBNZ’s dovish tone supports our view that the Bank will cut rates again before the year is out. In fact, we now think the Bank will cut at its next meeting in August, and once more at its November meeting. The Bank’s decision to hold rates unchanged …
26th June 2019
We expect another cut to 1.0% at the July meeting RBA has indicated that it wants the unemployment rate to fall to 4.5% Rates reaching lower bound opens door for quantitative easing We expect the Reserve Bank of Australia to cut interest rates to 1.0% at …
25th June 2019
The RBA seems to be getting more concerned about a slowdown in China’s GDP growth and the recent slowdown in visitor arrivals from China will only exacerbate those worries. Meanwhile, Governor Lowe said that the RBA was unlikely to pursue QE anytime soon. …
21st June 2019
GDP growth in Q1 was stronger than the RBNZ had forecast and the Bank will have been encouraged by the government’s stimulatory Budget. As such, the RBNZ is likely to take a ‘wait and see’ approach when it leaves rates on hold on at 1.50% on Wednesday …
20th June 2019
Growth in New Zealand is likely to remain soft throughout 2019 as subdued business conditions and weak global growth weigh on the economy. Indeed, we expect annual growth to slow from 2.9% in 2018 to just 2.2% this year. … New Zealand - GDP …
The RBA has moved closer to our view that the natural unemployment may be as low as 4.0%. That means unemployment would need to fall considerably before wage pressures begin to emerge. And we think the unemployment rate is more likely to rise this year …
14th June 2019
The surge in employment in May is unlikely to be sustained as the softness in economic activity limits employment growth. We expect the unemployment rate to rise to 5.3% before the end of the year. … Labour Market …
13th June 2019
Our forecast that the housing downturn would weigh on economic activity and force the RBA to cut rates was proven right this week. And given recent data suggest there is considerable spare capacity in the economy, we believe the RBA will have to reduce …
7th June 2019
The smaller trade surplus in April largely reflects commodity price movements so we expect net trade will still make a positive contribution to growth in Q2. … International Trade …
6th June 2019
Some of Australia’s banks have lowered mortgage rates by less than the reduction in the RBA’s cash rate. That’s hard to justify in light of the recent fall in funding costs. We think that mortgage rates will fall by 80bp if the RBA cuts rates to 0.75% as …
5th June 2019
The economy is off to a rough start in 2019, and we suspect that things won’t get better anytime soon. Indeed, we expect the housing downturn to remain a drag on the economic outlook over the rest of 2019 causing growth to slow from 2.8% in 2018 to 1.5% …
We think that today’s 25bp rate cut may be followed by two additional rate cuts before the year is out. Combined with renewed falls in iron ore prices, that suggests that the Australian dollar may weaken again before long. … RBA may have to cut rates to …
4th June 2019
The fall in retail sales in April demonstrates that the housing downturn is continuing to weigh on consumption growth. And we expect subdued consumption growth will continue to dash any hopes of a rebound in GDP growth throughout 2019. … Retail Sales …
The deterioration in the New Zealand and Australian economies is starting to flow through to a softening in the labour market. Admittedly, employment growth in Australia has risen to the highest rate in ten months. But the rate of jobs growth isn’t strong …
3rd June 2019
We expect the pace of house price declines to gradually ease this year with house prices reaching a trough by the end of the year. We suspect house prices may start to rise again thereafter, by 3% in 2020 and 5% in 2021. … CoreLogic House Prices …
Business investment probably dropped again in Q1 and with business confidence remaining weak we think private investment will continue to decline over the rest of 2019. By contrast, we suspect the housing downturn may come to an end by the end of the …
31st May 2019
Significant increases in operating and capital spending are a welcome takeaway from today’s Budget. But the economic impact is likely to be modest and the government is still expected to be a drag on the economic outlook before long. … New Zealand - …
30th May 2019
Private investment probably fell for the third consecutive quarter in Q1 and firms’ forecasts point to further declines over coming quarters. … Private Capex Survey …
We expect the current housing downturn to end around the turn of the year. We think that house prices may rise by 3% from their trough in 2020 and by 5% in 2021. While rising house prices should boost consumption growth, the drag on dwellings investment …
29th May 2019
The Reserve Bank of Australia (RBA) has telegraphed that it will cut interest rates to 1.25% in June and we think it will follow up with another 25bp cut in August. But we suspect that further easing will be needed to lift GDP growth towards potential and …
28th May 2019
Proposed changes by Australia’s bank regulator will increase the maximum loan size for some borrowers. While that is unlikely to bolster housing demand much at this stage, as the RBA lowers interest rates the effect should become more pronounced and …
24th May 2019
The RBA has made it clear that quantitative easing is its preferred tool once interest rates reach the effective lower bound. But we suspect that the Bank would first cut interest rates from their current level of 1.5% to 0.5% or lower before QE is …
21st May 2019
The Coalition government’s surprise victory in the federal election won’t make much of a difference for fiscal policy in the near-term but will result in smaller surpluses beyond 2022. It also improves the outlook for the housing market and corporate …
20th May 2019
Employment growth has picked up over the last couple of months, but with the labour force expanding even faster the unemployment rate has started to rise. With GDP growth below potential and underlying inflation well below target, we suspect that will be …
17th May 2019
The rise in unemployment in April was largely due to a jump in the labour force participation rate so the RBA may not feel pressured to ease policy immediately. But as unemployment remains high over the coming months, we reiterate our view that the RBA …
16th May 2019
The stagnation in wage growth in the first quarter underlines that the tighter labour market isn’t boosting cost pressures and supports our view that the Reserve Bank of Australia will cut interest rates soon. … Wage Price Index …
15th May 2019
The RBA left rates on hold this week while the RBNZ cut. That’s odd as the case for a rate cut looks much stronger in Australia. In any case, we think that rates will need to fall in Australia as well, not least because fiscal policy may soon become …
10th May 2019
The Reserve Bank of Australia’s (RBA) Statement on Monetary Policy (SMP) sounded a little more upbeat than the statement issued after the Bank kept rates on hold on Tuesday. We still think that the Bank is too optimistic about the outlook and that rates …
Strong business credit growth could be a sign that firms are becoming more upbeat about the outlook for business investment. In reality though, the data tend to lag actual investment spending and we still expect business investment to fall by 2% this …
9th May 2019
