Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

Australia and NZ - Weekly Prospects 23 June 08

Australia and New Zealand - Weekly Prospects


* The minutes from the RBA's June policy meeting were the highlight in Australia last week. The RBA Board acknowledged that inflation had risen to an "uncomfortably high rate" and members were concerned that rising inflation expectations may begin to affect wage and price setting behaviour; this would prompt the RBA to review its current policy stance. We maintain our forecast that the RBA will leave rates steady for the remainder of 2008, but acknowledge the risk of an upward move if domestic demand does not slow in line with the RBA's expectations. There is no data with potential policy implications scheduled for release this week.


* Key economic indicators were absent from the New Zealand economic calendar last week, but this week brings the important 1Q GDP and current account numbers. The Kiwi economy probably contracted 0.4%q/q in the March quarter, owing mainly to weaker private consumption growth. With a contraction in GDP growth of 0.1%q/q also forecast for 2Q, the economy looks to be in the midst of a technical recession. May trade numbers on Friday will likely show the trade balance improving to a modest surplus.


* Global markets were rocked last summer by a credit crisis emanating from US housing finance. The reverberations of this shock have produced painful financial adjustments that are weighing on growth. However, the global economy has displayed impressive resilience so far and financial market turmoil, by itself, does not appear to threaten the life of the expansion. Unfortunately, the reward for resilience has been a significant rise in inflation that is set to intensify during the coming months. Headline consumer price inflation in the developed economies is set to reach 4%oya next quarter, a level last seen in 1991. In emerging markets, consumer price inflation is headed for 8%oya. With a material downshift in global growth also in the cards, it looks like we are entering a second summer of discontent as stagflation adds insult to the still significant injuries being inflicted by last year's credit market turmoil.


* When the FOMC meets this week, no action or explicit policy guidance should be expected from the meeting statement. Instead, the statement will signal that the Fed's bias is no longer skewed toward concern about growth and financial stability and that it is committed to resisting an upcreep in inflation expectations. Viewed against the backdrop of its current stance—the fed funds rate stands below core inflation—this would be an implicit signal of the path ahead for policy. If this shift in risk perception is validated by economic and financial developments in the coming months, the Fed is signalling that the rate normalization process is likely to start before year end.


* European policymakers face similar challenges, as they see growth slowing in an environment in which inflation is rising and inflation expectations are drifting higher. Relative to the Federal Reserve, they have less concern about recession risks and financial stability. As a result, they are likely to respond to the inflation pressures by delivering modest rate hikes this summer.


ENDS


See... AusNZ_weekly_23June08.pdf

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Crown Accounts: Slightly Softer Growth Expected In PREFU

A slightly softer growth forecast is the main feature of largely unchanged Pre-election Fiscal Update compared to the Budget forecasts three months ago, Finance Minister Steven Joyce says. More>>

ALSO:

Water: Farming Leaders Pledge To Help Make Rivers Swimmable

In a first for the country, farming leaders have pledged to work together to help make New Zealand’s rivers swimmable for future generations. More>>

ALSO:

Unintended Consequences: Liquor Change For Grocery Stores On Tobacco Tax

Changes in the law made to enable grocery stores to continue holding liquor licences to sell alcohol despite increases in tobacco taxes will take effect on 15 September 2017. More>>

Back Again: Government Approves TPP11 Mandate

Trade Minister Todd McClay says New Zealand will be pushing for the minimal number of changes possible to the original TPP agreement, something that the remaining TPP11 countries have agreed on. More>>

ALSO:

By May 2018: Wider, Earlier Microbead Ban

The sale and manufacture of wash-off products containing plastic microbeads will be banned in New Zealand earlier than previously expected, Associate Environment Minister Scott Simpson announced today. More>>

ALSO: