Weekly Economic Commentary - Virus in the ointment - Westpac
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Fiordland National Park, New Zealand
Weekly Economic
Commentary.
Virus in the ointment.
Events are quickly being overtaken by the coronavirus outbreak spreading from China. We
estimate that the travel ban from China to New Zealand will dent quarterly GDP by 0.4% if
it lasts two months. Before the travel ban was announced, the RBNZ was on track to shift
to a neutral OCR outlook, but now the OCR outlook depends on how severe the coronavirus
disruption turns out to be.
As the human toll of the coronavirus epidemic centred The economic costs to New Zealand will arise not from the
in China grows, so the economic impact on New Zealand virus itself, but from the measures taken globally to try to
intensifies. The SARS outbreak in 2003 was big news, but it contain it. Almost 60 million people are already effectively
had a vanishingly small impact on the New Zealand economy under lockdown in China, and people elsewhere in China
of around 0.1% of GDP. But that might not be the best guide to are avoiding gathering in numbers. High-end New Zealand
how severely this coronavirus will impact New Zealand. For a food exports destined for such gatherings have already been
start, we simply do not know if the coronavirus will blow over impacted. Crayfish was the first example, but we expect other
like SARS and Swine Flu did, or whether it will turn into a more seafood, fruit and meat exports will soon be seriously disrupted,
serious and long-lasting event. In any case, New Zealand’s as well as lesser disruptions to other exports stemming from the
exports are more heavily concentrated toward the affected general slowing of economic activity in China.
countries than they were during the SARS outbreak. In 2003
only 5% of our exports went to mainland China and 2% to The biggest impact on the New Zealand economy will stem
Hong Kong; more broadly, 23% went to Asia ex-Japan. Today, from fewer people travelling between the two countries. Last
28% of our exports go to China alone, and 48% go to Asia ex-Japan. week China banned all outbound travel booked through the
01 3 February 2020 Weekly CommentaryChinese Tourism Bureau. Over the weekend, New Zealand Last week, before the ban on foreign nationals travelling from
announced it would deny entry to all foreign nationals arriving China to New Zealand, we announced that we expected the
from China. The ban is currently in force for two weeks, but we RBNZ would abandon its strong easing bias and move to a
can only really see two possible outcomes – either the travel more neutral monetary policy outlook.1 This was all based on
ban lasts much longer, or the coronavirus enters New Zealand our observations of the economy with no coronavirus impact.
in force and the authorities give up on ideas of quarantine. While events have obviously moved on since last week, it is
still worthwhile considering what the “ex-coronavirus” base
We have calculated a plausible scenario in which seasonally case was for the OCR outlook.
adjusted visitor arrivals to New Zealand drop by 11% over the
coming three months. That, on its own, would reduce Instead of publishing a 0.9% OCR forecast, we expected
New Zealand quarterly GDP by around 0.4 percentage points. the RBNZ’s new OCR forecast would be flat at 1.0%. And we
The assumptions underpinning that are that we receive zero expected the language to shift from “50/50 chance of a cut”
visitor arrivals from China for two months, followed by half to something more like “we expect to keep the OCR at its
the usual number in the third month. We further assume that current level for an extended period, but will react to evolving
arrivals from the rest of Asia are dented by 20%. On top of the data as necessary.”
direct impact of restricted travel, the New Zealand economy
will also face second-round effects such as reduced spending The key reasons for our change of stance were that both
by furloughed tourism workers, and the GDP impact from inflation and unemployment are now close to the Reserve
disrupted goods exports. Bank’s targets, giving little reason to shift the OCR. Since
the last MPS, the housing market has heated up in a way the
The crucial factor is how long the virus remains disruptive RBNZ can no longer dismiss; the Government has announced
to the economy. Should the epidemic recede quickly, then a major infrastructure spend-up which will stimulate the
the hit to the economy will prove fleeting and the recovery economy; and New Zealand economic data has been stronger
very rapid. The hit to annual GDP would be far less than 0.4 than expected. The RBNZ will also have taken comfort from
percentage points, and the implications for the Reserve the general improvement in global economic sentiment
Bank and other economy-watchers would be limited. If the over recent months, even though the actual economic data
epidemic disrupts economic life for longer than SARS or Swine remains weak.
Flu did, then the consequences would be more severe. For
example, would-be students travelling to New Zealand might
Figure 1: Total Visitor Arrivals into New Zealand assuming
cancel their plans altogether, rather than merely postponing
two-month ban on travel from China
their travel.
360 Number (000) 360
The Reserve Bank will issue its next Monetary Policy Number (000)
Westpac Forecasts
Statement (MPS) on February 12. Deliberations are occurring 340 340
this week amid a moving feast of information on the 320 320
coronavirus. The obvious strategy for the RBNZ is to keep the
OCR on hold and say that the outlook depends on how the 300 300
coronavirus situation evolves. If the coronavirus quickly blows 280 280
over quickly then the outlook will be for the OCR to remain on
hold. But the RBNZ will also say that it stands ready to cut the 260 260
OCR should the coronavirus situation warrant it. Exactly how 240 240
the RBNZ expresses these sentiments is uncertain. Source: Stats NZ, Westpac
220 220
2015 2016 2017 2018 2019 2020 2021
1 https://westpaciq.westpac.com.au/wibiqauthoring/_uploads/file/New_Zealand/2020/January_2020/RBNZ_bulletin_January_2020_-_Westpac_NZ.pdf
02 3 February 2020 Weekly CommentaryFixed vs Floating for mortgages.
The mortgage rate outlook is now uncertain. Fixed mortgage NZ interest rates
rates have tumbled over the past six months, but they are
% %
now starting to creep higher again as the chances of further 1.8 1.8
OCR cuts fade. 1.7 1.7
1.6 28-Jan-20 1.6
Among the fixed rates on offer, we think the best value 1.5
3-Feb-20
1.5
is in the one- and two-year rates. Longer-term rates are 1.4 1.4
high relative to where we think future short-term rates will 1.3 1.3
go. That said, fixing for longer terms does offer security 1.2 1.2
against future interest rate increases, and therefore may be 1.1 1.1
preferred by those with low risk tolerance.
1.0 1.0
1yr swap
2yr swap
3yr swap
4yr swap
5yr swap
7yr swap
10yr swap
90 days
180 days
Floating mortgage rates are normally expensive for
borrowers, but they may be the preferred option for those
who require flexibility in their repayments.
03 3 February 2020 Weekly CommentaryThe week ahead.
NZ Dec dwelling consents NZ building consents
Feb 4, Last: -8.5%, Westpac f/c: +2% consents $m
4,000 1,200
– Residential dwelling consent issuance fell 8.5% in November. That decline
Residential (number, left axis)
followed strong issuance in the previous two months that was boosted by 1,000
a large number of medium density dwelling consents. Non-residential (value, right axis)
3,000
– We’re forecasting a modest 2% rise in total consents in December, with 800
firmness in standalone dwelling consents and a recovery in medium-
density numbers 2,000 600
– After trending higher in recent years, monthly consent issuance has 400
flattened off over the past year. We expect that will continue over the 1,000
coming year. It will also be worth watching the geographic breakdown 200
of consents. In Auckland, which has accounted for much of the lift in Source: Stats NZ
consents in recent years, issuance is flattening off. However, issuance is 0 0
picking up elsewhere. 2003 2005 2007 2009 2011 2013 2015 2017 2019
NZ Q4 Household Labour Force Survey Household Labour Force Survey
Feb 5, Employment last: +0.3%, % ann % chg
WBC f/c: +0.3%, Mkt f/c: +0.4% 12 12
Unemployment last: 4.2%, Employment growth (right axis) 10
10
WBC f/c: 4.2%, Mkt f/c: 4.2% Unemployment rate (left axis)
8
– We expect the unemployment rate to hold steady at 4.2% in the 8
6
December quarter. The economy slowed from an above-trend pace of
growth to around trend in 2019. That’s consistent with a stalling in the rate 6 4
of improvement in the labour market, rather than a softening. 2
4
– Indicators for the quarter were mixed. Job advertisements were down 0
slightly, but business confidence surveys showed a mild improvement 2
in hiring intentions and Stats NZ’s new monthly employment indicator -2
Sources: Stats NZ, Westpac
pointed to steady growth over late 2019. 0 -4
– Our forecasts are in line with what the Reserve Bank expected in its 1991 1995 1999 2003 2007 2011 2015 2019
November Monetary Policy Statement. At that time the RBNZ assessed
the economy to be running at ‘maximum sustainable employment’ or even
slightly on the hot side.
NZ Q4 Labour Cost Index LCI and QES salary and wages, all sectors
Feb 5, Private sector last: 0.6%, ann % chg ann % chg
WBC f/c: 0.5%, Mkt f/c: 0.6% 7 Quarterly Employment Survey 7
6 Labour Cost Index 6
– We expect a 0.5% increase in labour costs for the December quarter. This
quarter was not affected by public sector pay agreements or minimum
5 5
wage hikes, so it will provide a relatively clean read on the strength of
wage pressures. 4 4
– An unemployment rate of 4.2% is close to what we would consider to be
3 3
neutral – that is, consistent with neither a slowdown nor an acceleration
in wage growth. Consequently, there has been only limited evidence of a 2 2
pickup in wage growth so far outside of government-mandated increases.
1 1
– The QES measure of average hourly earnings tends to be more responsive Sources: Stats NZ, Westpac
than the LCI measure, and has seen a more notable pickup in the last 0 0
couple of years. However, it can be volatile on a quarterly basis. 1995 1998 2001 2004 2007 2010 2013 2016 2019
04 3 February 2020 Weekly CommentaryThe week ahead.
Aus Jan CoreLogic home value index Australian dwelling prices
Feb 3, Last: 1.2%, WBC f/c: 0.9% %ann %mth
21
– Australian dwelling prices have posted a clear recovery since mid-2019, 18 mthly (rhs) annual (lhs) 6
prices rising 7.2% nationally over the second half of the year, retracing 15
two thirds of the 10.7% decline over the previous two years. 12 4
– The daily index shows a further gain in January with the 9
'5 capital city' measure tracking towards a 0.9% rise for the month. 6 2
That will take annual price growth to just over 5% for the first time since 3
Nov 2017. As always, January housing data should be treated with extra 0 0
caution due to thin trading conditions during the holiday period. In
-3
general, prices gains tend to be more muted in Dec and Jan due to the
-6 -2
dearth of buyers.
-9
Sources: CoreLogic, Westpac Economics
-12 -4
Dec-07 Dec-09 Dec-11 Dec-13 Dec-15 Dec-17 Dec-19
Aus Dec dwelling approvals Australian dwelling approvals
Feb 3, Last: 11.8%, WBC f/c: –5% '000 NSW (lhs) '000
25 250
Mkt f/c: –5%, Range: –7% to 13% rest of Aus (lhs)
total annualised (rhs)
– Dwelling approvals jumped 11.8% in Nov as a 35% spike in high rise 20 200
combined with a strong 6% gain in non high rise. The detail showed a
particularly strong 50%+ gain in NSW, suggesting state government
policy changes aimed at improving building quality standards may have 15 150
been a factor (approvals may have rebounded after being held back prior
to the change). Total approvals ex NSW were down –0.9%mth, –8.3%yr. 10 100
– On balance we see the Nov jump as paring back some of the downside
risks that were emerging in previous months but not as the beginning of 5 50
a sustained rise. While Australia's housing markets are showing a clear
*3mth avg, dotted lines are monthly
improvement since mid-2019 the flow on boost to construction activity Sources: ABS, Westpac Economics
looks likely to come through slowly and be overshadowed by ongoing 0 0
Nov-04 Nov-07 Nov-10 Nov-13 Nov-16 Nov-19
weakness in the high rise segment. As such we expect approvals to fall
5% in Dec, retracing much of the Nov gain.
Aus RBA policy decision RBA: Westpac forecast and market pricing
Feb 4, Last: 0.75%, WBC f/c: 0.75% % %
1.75 Market 20 Feb 2019** 1.75
Mkt f/c: 0.75%, Range: 0.50% to 0.75% Market now*
– The RBA left the cash rate on hold at its December meeting but retained 1.50 Westpac forecast/actual 1.50
a clear easing bias, the Governor's decision statement noting the Board
1.25 1.25
“continues to monitor developments, including in the labour market”, and
“is prepared to ease monetary policy further if needed.” 1.00 1.00
– Developments since December meeting – including a disappointing Q3
0.75 0.75
national accounts update, the bushfire emergency and the coronavirus
outbreak – will reinforce the Bank's easing bias but with key labour 0.50 0.50
market data holding up better than expected a February rate cut looks
Sources: Bloomberg, Westpac Economics
unlikely (see p2 for a full discussion). We continue to expect further 0.25 * Pricing as at January 29 0.25
cuts, with 25bp reductions in April and August followed by a move to ** Pricing prior to Westpac view change
quantitative easing measures sometime thereafter. 0.00 0.00
Mar 19 Jun 19 Sep 19 Dec 19 Mar 20 Jun 20 Sep 20 Dec 20
– Note that the RBA's February Statement on Monetary Policy is also due to
be released on Feb 7 and will include updated economic forecasts. The
RBA Governor is also due to speak on Feb 5, topic: "The Year Ahead".
05 3 February 2020 Weekly CommentaryThe week ahead.
Aus Dec retail trade Australian monthly retail sales
Feb 6, Last: 0.9%, WBC f/c: –0.2% $bn %chg
30 3.0
Mkt f/c: –0.2%, Range: –0.5% to 0.1%
28 level (lhs) Cyclone 2.5
– Retail sales posted a 0.9% gain in Nov, the biggest monthly rise in two Debbie
mthly % chg - trend (rhs)
years. Unfortunately, much of it looks to be a pull forward relating to the 26
2.0
increasingly popular 'Black Friday' sales. There may also have been some
1.5
delayed effect from policy stimulus measures – tax payments and interest 24
rate cuts effectively adding about $4.5bn to disposable incomes in Q3 – 1.0
although this looks to be marginal. 22
0.5
– We expect retail sales to decline 0.2% in Dec. While policy measures 20
0.0
could continue to provide some slight support, the dominant drivers
are likely to be an unwind of the 'Black Friday' pull-forward effect and an 18 -0.5
initial hit from worsening bushfire conditions in Australia's south east Source: ABS; Westpac Economics
(which included widespread smoke pollution across major capital cities). 16 -1.0
Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17 Nov-18 Nov-19
Aus Q4 real retail sales Australian quarterly retail volumes and prices
Feb 6, Last: –0.1%, WBC f/c: 0.2% %ann %qtr
Mkt f/c: 0.3%, Range: 0.1% to 0.6% Sources: ABS, Westpac
9 Economics 4.5
fiscal Qld floods
– Real retail sales dipped 0.1% in Q3, marking the third decline in payments
fiscal
payments
four quarters and taking annual growth to –0.2%yr, the first annual
contraction since the early 1990s recession. The result was particularly 6 3.0
disappointing given significant policy stimulus in the quarter, the wider
spending measures in the Q3 national accounts indicating that essentially
3 1.5
none of the cash flow boost to disposable incomes was spent in the
quarter.
– The December quarter looks set to show only a very slight improvement. 0 0.0
Cyclone
Nominal sales are tracking towards a 1.0% gain vs 0.7% in Q3. On the qtly%ch
fiscal
Debbie
price side the CPI detail showed a strong drought-related rise in food payments
prices but more aggressive discounting reducing prices for non food -3 -1.5
Sep-07 Sep-09 Sep-11 Sep-13 Sep-15 Sep-17 Sep-19
items. The mix is likely to see a Q4 retail deflator rise similar to that in
Q3. Overall we expect the quarter to show a slightly better outturn for
volumes with a 0.2% gain but annual growth still very weak at 0.1%yr.
Aus Dec trade balance, AUDbn Australia’s trade balance
Feb 6, Last: 5.8, WBC f/c: 6.7 AUDbn AUDbn
45 10
Mkt f/c: 5.6, Range: 4.0 to 7.4 G&S trade balance (rhs) Dec f/c: +$6.7bn
40 Exports (lhs) 8
– Australia's trade surplus remains sizeable - albeit being down from the
June record high of $7.9bn. Imports (lhs)
6
35
– For December, we anticipate a widening of the surplus, up by $0.9bn to 4
$6.7bn, led higher by export strength. 30
2
– Export earnings rise a forecast 3.7%, +$1.5bn. Shipments of iron ore, LNG, 25
0
and gold rallied in the final month of the year, to be at or around record
highs. Gold shipments likely jumped as well, in the lead-up to Lunar New 20
-2
Year (January 25).
15 -4
– Imports have been a wild-card of late - with average swings of 2% a Sources: ABS, Westpac Economics
10 -6
month over the last half year. Coming off a 2.8% drop, we anticipate
Nov-06 Nov-10 Nov-14 Nov-18
a partial rebound, up 1.7% ($0.6bn). Looking through the noise, the
underlying picture is one of weakness, consistent with soft domestic
demand.
06 3 February 2020 Weekly CommentaryThe week ahead.
US Jan employment report US employment growth
Feb 7, nonfarm payrolls last: 145k, WBC: 170k %6m ann %6m ann
nonfarm payrolls growth
Feb 7, unemployment rate last: 3.5%, WBC: 3.5% 4 4
Feb 7, hourly earnings last: 0.1%, WBC: 0.3% 3
F’cast
3
2 2
– During 2019, nonfarm payrolls growth clearly slowed, from an average of
1 1
223k in 2018 to 176k. Come 2020, we look for another step down to circa
130k per month, as GDP growth falls below potential. This deceleration 0 0
will however be slow, beginning with a 170k gain in January. -1 -1
– The 130k average gain expected through 2020 will, assuming an -2 -2
unchanged participation rate, be enough to hold the unemployment rate -3 -3
broadly steady at its 50-year low. -4 -4
Sources: BLS, Macrobond, Westpac Economics
– Combined, slowing momentum in job creation and limited labour market -5 -5
slack is expected to see hourly earnings continue to grow at a robust pace -6 -6
around 3.0%yr. The lack of another uplift in wages however means that 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
the deceleration in job growth will pass to total household income gains.
07 3 February 2020 Weekly CommentaryNew Zealand forecasts.
Economic forecasts Quarterly Annual
2019 2020
% change Sep (a) Dec Mar Jun 2018 2019f 2020f 2021f
GDP (Production) 0.7 0.6 0.6 0.7 3.2 2.3 2.5 3.0
Employment 0.2 0.4 0.4 0.4 1.9 1.2 1.8 2.0
Unemployment Rate % s.a. 4.2 4.2 4.3 4.3 4.3 4.2 4.2 4.0
CPI 0.7 0.5 0.5 0.4 1.9 1.9 1.8 1.7
Current Account Balance % of GDP -3.3 -3.1 -2.9 -2.8 -3.8 -3.1 -2.9 -3.2
Financial forecasts Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21
Cash 1.00 1.00 0.75 0.75 0.75 0.75
90 Day bill 1.20 1.10 0.90 0.90 0.90 0.90
2 Year Swap 1.10 1.05 1.00 1.00 1.00 1.05
5 Year Swap 1.25 1.20 1.20 1.25 1.30 1.35
10 Year Bond 1.35 1.25 1.25 1.25 1.35 1.40
NZD/USD 0.66 0.66 0.66 0.66 0.66 0.66
NZD/AUD 0.97 0.99 0.99 0.99 0.97 0.96
NZD/JPY 70.6 69.4 69.3 69.3 70.0 70.6
NZD/EUR 0.61 0.60 0.59 0.59 0.58 0.58
NZD/GBP 0.50 0.50 0.50 0.50 0.50 0.50
TWI 73.1 72.7 72.6 72.3 72.0 71.5
2 year swap and 90 day bank bills NZD/USD and NZD/AUD
2.20 2.20 0.70 1.00
2.00 2.00 0.69
0.98
1.80 1.80 0.68
0.67 0.96
1.60 1.60
0.66
1.40 1.40 0.94
0.65
1.20 1.20
0.64 0.92
1.00 90 day bank bill (left axis) 1.00 0.63 NZD/USD (left axis)
2 year swap (right axis) 0.90
0.80 0.80 0.62 NZD/AUD (right axis)
0.60 0.60 0.61 0.88
Dec-18 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Dec-19 Dec 18 Feb 19 Apr 19 Jun 19 Aug 19 Oct 19 Dec 19
NZ interest rates as at market open on 3 February 2020 NZ foreign currency mid-rates as at 3 February 2020
Interest rates Current Two weeks ago One month ago Exchange rates Current Two weeks ago One month ago
Cash 1.00% 1.00% 1.00% NZD/USD 0.6471 0.6615 0.6561
30 Days 1.21% 1.21% 1.19% NZD/EUR 0.5828 0.5966 0.5934
60 Days 1.24% 1.25% 1.20% NZD/GBP 0.4895 0.5083 0.5000
90 Days 1.26% 1.29% 1.20% NZD/JPY 70.06 72.87 71.29
2 Year Swap 1.09% 1.22% 1.25% NZD/AUD 0.9652 0.9625 0.9596
5 Year Swap 1.16% 1.35% 1.36% TWI 71.63 72.64 72.76
08 3 February 2020 Weekly CommentaryData calendar.
Market Westpac
Last Risk/Comment
median forecast
Mon 3
Aus Jan CoreLogic home value index 1.2% – 0.9% Prices have now clawed back two thirds of their correction.
Dec dwelling approvals 11.8% –5.0 –5.0% Nov jump driven by temporary spike in NSW.
Jan ANZ job ads –6.7% – – Down 18.8%yr, job ads have been week since early 2019.
Jan MI inflation gauge 1.4% – – Up 0.3% in Dec, did this momentum continue in Jan?
Jan AiG PMI 48.3 – – Dec was the second consecutive sub 50 reading.
Chn Dec industrial profits %yr 5.4% – – Industry ended 2019 on sound footing, but 2020 uncertain.
Jan Caixin China PMI 51.5 51.0 – Growth ahead of new year holidays was modest.
US Dec construction spending 0.6% 0.4% – Business investment weak, and will remain that way.
Jan ISM manufacturing 47.2 48.4 – A bounce from Dec very weak level likely.
Tue 4
NZ Dec building permits –8.5% – 2.0% Bounce after last month's fall. Issuance flattening off.
Aus RBA policy announcement 0.75% 0.75% 0.75% Pause for now. Rates to move lower, April and August.
US Fedspeak – – Fed's Bostic Discusses Big Data, AI and Machine Learning
Dec factory orders –0.7% 0.7% – Core durable orders disappointed again in Dec.
Wed 5
NZ Q4 unemployment rate 4.2% 4.2% 4.2% Unemployment is likely to have remain unchanged…
Q4 employment 0.2% 0.4% 0.3% ...with modest jobs growth in late 2019.
Q4 labour cost index (pvt, ord time) 0.6% 0.6% 0.5% Annual wage growth is running at a ten-year high.
Aus RBA Governor Lowe speaking – – – The Year Ahead, National Press Club Sydney, 12:30pm.
Jan AiG PCI 38.9 – – Construction sector sharp contraction, incl housing downturn.
Chn Jan Caixin China PMI services 52.5 52.0 Services PMI may show initial impact of coronavirus.
Eur Dec retail sales 1.0% –0.5% – Euro Area domestic demand remains resilient.
US Jan ADP employment change 202k 150k – Employment growth is clearly slowing.
Dec trade balance US$bn –43.1 –47.4 – Imports fell sharply in Q4, to bounce into Q1.
Jan ISM non–manufacturing 55 55.1 – Services sector benefitting from strong labour market.
Thu 6
NZ Waitangi Day – – – Public holiday
Aus Dec retail sales 0.9% –0.2 –0.2% 'Black Friday' boost unwinds. Hit from bushfires?
Q4 real retail sales –0.1% 0.3 0.2% Slightly better quarter but still very weak.
Dec trade balance, AUDbn 5.8 5.6 6.7 Exports +3.7% (strong volumes), imports rebound, +1.7%.
Q4 NAB business survey –2 – – Dec mthly survey reported soft conditions, weak confidence.
Eur ECB speak – – – President Lagarde in Brussels.
US Initial jobless claims, '000 216 – – Very low, with firing remaining absent.
Fedspeak – – – Kaplan, Economic Outlook in Dallas; Brainard on payments.
Fri 7
NZ Q1 RBNZ inflation expectations (2yr) 1.80% – – Likely to remain a little below 2%.
Aus RBA Governor Lowe – – – Testimony to Parliament Committee
RBA Statement on Monetary Policy – – – Forecast update a key focus.
Jan AiG PSI 48.7 – – Index choppy (-5pts in Dec). Service sectors subdued.
Chn Jan trade balance USDbn 47.2 – – Lunar new year effect to be followed by coronavirus shock.
Jan foreign reserves, $bn 3108 – – Broadly stable over past year.
US Jan non–farm payrolls 145k 160k 170k Employment growth will slow through 2020...
Jan unemployment rate 3.5% 3.5% 3.5% ... resulting in stable unemployment rate....
Jan average hourly earnings %mth 0.1% 0.3% 0.3% ... and modest wage gains.
Fedspeak – – – Quarles on policy and economic outlook.
Fed's Semi-Ann' Monetary Report – – – Released to Congress.
09 3 February 2020 Weekly CommentaryInternational forecasts.
Economic forecasts (Calendar years) 2016 2017 2018 2019f 2020f 2021f
Australia
Real GDP % yr 2.8 2.5 2.7 1.8 2.0 2.5
CPI inflation % annual 1.5 1.9 1.8 1.8 1.7 2.1
Unemployment % 5.7 5.5 5.0 5.2 5.4 5.2
Current Account % GDP -3.1 -2.6 -2.1 0.6 -0.6 -2.0
United States
Real GDP %yr 1.6 2.4 2.9 2.3 1.6 1.5
Consumer Prices %yr 1.4 2.1 2.4 1.8 1.9 1.9
Unemployment Rate % 4.9 4.4 3.9 3.7 3.4 3.5
Current Account %GDP -2.3 -2.3 -2.3 -2.6 -2.5 -2.4
Japan
Real GDP %yr 0.6 1.9 0.8 0.8 0.4 0.5
Euro zone
Real GDP %yr 1.9 2.5 1.9 1.2 1.0 1.2
United Kingdom
Real GDP %yr 1.8 1.8 1.4 1.3 0.8 1.5
China
Real GDP %yr 6.7 6.8 6.6 6.1 5.8 5.8
East Asia ex China
Real GDP %yr 4.0 4.5 4.3 3.6 3.7 3.9
World
Real GDP %yr 3.4 3.8 3.6 3.0 3.0 3.2
Forecasts finalised 31 January 2020
Interest rate forecasts Latest Mar–20 Jun–20 Sep–20 Dec–20 Mar–21 Jun–21 Dec–21
Australia
Cash 0.75 0.75 0.50 0.25 0.25 0.25 0.25 0.25
90 Day BBSW 0.88 0.85 0.70 0.45 0.45 0.50 0.50 0.50
10 Year Bond 0.96 1.00 0.95 0.90 0.80 0.80 0.85 1.05
International
Fed Funds 1.625 1.625 1.375 1.125 0.875 0.875 0.875 0.875
US 10 Year Bond 1.58 1.60 1.50 1.45 1.40 1.45 1.50 1.70
ECB Deposit Rate –0.50 –0.50 –0.60 –0.60 –0.60 –0.60 –0.60 –0.60
Exchange rate forecasts Latest Mar–20 Jun–20 Sep–20 Dec–20 Mar–21 Jun–21 Dec–21
AUD/USD 0.6710 0.68 0.66 0.67 0.67 0.68 0.69 0.72
USD/JPY 108.93 107 106 105 105 106 107 109
EUR/USD 1.1029 1.09 1.10 1.11 1.12 1.13 1.14 1.15
GBP/USD 1.3092 1.30 1.30 1.30 1.30 1.31 1.31 1.32
USD/CNY 6.9109 6.95 6.90 6.85 6.80 6.80 6.75 6.60
AUD/NZD 1.0349 1.03 1.01 1.02 1.02 1.03 1.05 1.07
10 3 February 2020 Weekly CommentaryContact the Westpac economics team.
Dominick Stephens, Chief Economist Paul Clark, Industry Economist
+64 9 336 5671 +64 9 336 5656
Michael Gordon, Senior Economist Any questions email:
+64 9 336 5670 economics@westpac.co.nz
Satish Ranchhod, Senior Economist
+64 9 336 5668
Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the
forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.
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