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Australia & New Zealand

Australia & New Zealand Data Response

Australia Labour Market (Jul. 2022)

We wouldn’t read too much into the first drop in employment since last year’s lockdowns. Indeed, the continued tightening of the labour market should encourage the RBA to press ahead with another 50bp rate hike next month.

18 August 2022

Australia & New Zealand Economics Update

RBNZ will hike rates to 4% but cut next year

The RBNZ lifted the overnight cash rate by 50bp to 3% today as everyone had anticipated and signaled that it will deliver another 50bp hike in October. We now expect the Bank to hike rates to a peak of 4% instead of our previous forecast of 3.5%, but we still expect rate cuts next year.

17 August 2022

Australia & New Zealand Data Response

Australia Wage Price Index (Q2)

Wage growth surpassed its pre-virus peak in Q2 and will jump above 3% this quarter due to a surge in the minimum wage and a tightening labour market. Asia Drop-In (25th Aug.): What’s the economic impact of a weak yen? What does the latest China-Taiwan flare-up mean for decoupling? How ugly are conditions in China’s real estate sector? Join economists from across our Asia services for this regular briefing on the region’s big investment stories. Register now.

17 August 2022

Key Forecasts

Main Economic & Market Forecasts

%q/q(%y/y) unless stated

Q1 2022

Q2 2022

Q3 2022

Q4 2022

Q1 2023

Q2 2023

2022

2023

2024

Australia

GDP

0.8(3.3)

1.7(4.2)

0.6(6.7)

0.6(3.7)

0.1(3.0)

0.1(1.4)

(4.5)

(1.5)

(1.5)

CPI Inflation (NSA)

(5.1)

(6.1)

(7.4)

(7.8)

(7.0)

(5.9)

(6.6)

(5.1)

(2.2)

Core CPI Inflation1 (NSA)

(4.0)

(5.3)

(6.7)

(6.9)

(6.5)

(5.5)

(5.7)

(4.8)

(2.5)

Unemployment Rate (Ave., %)

4.1

3.8

3.4

3.2

3.2

3.4

3.6

3.5

4.2

RBA Cash Rate, End Period (%)

0.10

0.85

2.35

3.10

3.60

3.60

3.10

3.35

3.10

US$/AUS$, End Period

0.75

0.69

0.67

0.66

0.66

0.65

0.66

0.64

0.64

New Zealand

GDP (production basis)

-0.2(1.2)

1.8(0.7)

0.7(5.4)

0.2(2.6)

0.2(2.9)

0.2(1.3)

(2.5)

(1.6)

(2.0)

CPI Inflation (NSA)

(6.9)

(7.3)

(6.0)

(5.1)

(4.0)

(2.8)

(6.3)

(2.9)

(2.2)

Core CPI Inflation1 (NSA)

(5.9)

(6.1)

(5.0)

(4.4)

(3.9)

(2.9)

(5.4)

(2.9)

(2.1)

Unemployment Rate (%)

3.2

3.3

3.5

3.6

3.8

3.9

3.4

4.0

4.4

RBNZ Cash Rate, End Period (%)

1.00

2.00

3.00

3.50

3.50

3.50

3.50

3.00

2.75

US$/NZ$, End Period

0.70

0.62

0.61

0.60

0.60

0.59

0.60

0.58

0.58

Aus$/NZ$, End Period

0.93

0.90

0.91

0.91

0.91

0.91

0.91

0.91

0.91

Sources: Bloomberg, Capital Economics; 1Excludes food, household energy and vehicle fuel.


RBA to slow pace of tightening from October

Australia & New Zealand Economics Weekly

27 November 2022

Our view

We now expect both the RBA and the RBNZ to lift rates to 3.5% as labour markets remain very tight, consumer spending is resilient and inflation will rise further than most anticipate. However, house prices are now falling in both countries and we think they will ultimately plunge by 20% from their peak in New Zealand and by 15% in Australia. While we aren’t overly worried about the wealth effect as Australia’s household savings rate remained very high throughout the previous housing boom, we think that falling house prices will result in a plunge in residential investment. While the analyst consensus foresees GDP growth around potential next year, we’re forecasting a sharp slowdown in both countries. The upshot is that we expect both central banks to reverse course in 2023.

Latest Outlook

Australia & New Zealand Economic Outlook

Housing downturn raises recession risks

With inflation rising even further than we had anticipated, both the RBNZ and the RBA will slam harder on the brakes than most anticipate. We expect policy rates to peak around 3.5% in both countries. With the ongoing housing downturns set to intensify, consumption growth will soften and dwellings investment will plunge. Accordingly, we expect both central banks to start loosening policy next year and have pencilled 50bp of rate cuts by the RBA and 75bp of rate cuts by the RBNZ.

7 July 2022