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Australia & NZ weekly
Week beginning 9 February 2015

RBA forecasts make the case for lower rates: technical assumptions are
key.

Australian data: Westpac-MI Consumer Sentiment, housing finance,
house prices, labour force survey.

RBA Governor parliamentary testimony.

NZ: retail electronic card spending, REINZ house prices and sales.

Euro: Q4 GDP.

US: retail sales, consumer confidence.

Key economic & financial forecasts.
Information contained in this report was current as at 6 February 2015
Economic Research
Sydney +61 2 8254 8720
[email protected]
New Zealand +64 9 336 5671
London +44 20 7621 7061
Westpac weekly
RBA forecasts make the case for lower
rates: technical assumptions are key
The Reserve Bank Board decided to lower the cash rate by 25bps
to 2.25% on February 3. This has been Westpac’s forecast since
December 4 when it became clear that demand conditions in the
Australian economy had deteriorated more sharply than we expect
the Bank had anticipated. The Governor’s post meeting statement
confirmed that assessment, as he referred to growth as being below
trend but more importantly “domestic demand growth overall quite
weak”.
In the all-important final paragraph of the statement, where the bias
of policy is usually communicated, the commentary was backward
looking, concluding that based upon assessments of the economy
and in particular the updated forecasts (subsequently released in
the Statement on Monetary Policy [SOMP], of which a great deal
more will be said below), a cut in the cash rate was appropriate.
The language in the final sentence which might have referred to “a
period of stability” or “scope to cut further” studiously avoided a
judgement on the appropriateness of the “stance” (i.e. the level of
interest rates and the mix of financial conditions) or the provision
of any forward guidance, simply making the obvious point that “this
action adds some further support to demand”. This approach gives
the Bank full flexibility to determine its next policy move without
making any commitment to the market.
Moving forward to the SOMP, the Bank has lowered its forecasts
for growth and inflation in 2015 despite the fact that the figures
were compiled in such a fashion as to include both the February
cut and “the assumption that the cash rate moves broadly in line
with market pricing at the time of writing”. Market pricing currently
envisages a further full 25bps cut plus another possible 10bps. In
short, the Bank is expecting that growth in 2015 will still be below
trend despite the current rate cut and the market’s expected further
rate cuts.
Regarding the medium-term projections (noting that the lag
between activity and interest rates can be as long as 18 months),
growth in the year to June 2016 is still expected at 3.25% (midpoint)
which is the generally accepted trend growth pace for the Australian
economy. Even accepting that the forecast growth reduction is due
to an extended weak spot at the end of 2014 and in the first half
of 2015 (when monetary policy enacted this year can hardly be
expected to have much impact), the fact that the Bank is assuming
that, with the recent cut along with the market’s expected cuts,
growth in the zone when monetary policy changes can be expected
to have an impact will only reach trend points to the need for lower
rates. Presumably if the Bank had made its forecasts on the basis
of steady rates then it would have been forecasting below trend
growth next year as well as this year.
indicates that domestic inflation is expected to hold around the
bottom of the forecast range. These forecasts are a reasonable
signal that the Bank forecasts that lower interest rates will be
required to return growth to trend, while the inflation outlook has
improved despite lower rates and a lower currency.
Not surprisingly, the general discussion in the Statement is
downbeat. Prospects for consumption, non-mining investment and
the labour market have been revised down. On the other hand the
Bank remains constructive on exports and the housing market.
Note the following quotations: “consumption will continue to grow
at a below average pace”; “the lower oil prices will contribute
around 0.75 percentage points to real disposable income … but
will be offset by lower labour incomes”; “the expected recovery
in non-mining investment has been pushed out to later in 2015”;
“a number of indicators suggest that spare capacity in the labour
market has increased, consistent with below trend growth”; “the
unemployment rate is expected to rise a little further and peak a
little later”; “many firms expect to see a period of low and stable
wage growth ahead”; ”unit labour costs will remain well contained”;
and “weaker near term outlook ... more than offset the upward
price pressures from further exchange rate depreciation”.
Back in December we forecast 25bp rate cuts in both February and
March. We expected that if the economy evolved as anticipated over
the subsequent months the Bank would see the case for easing
policy. A single cut was considered unlikely given that policy had
been on hold since August 2013. Two consecutive cuts seemed to
be the appropriate approach. The SOMP forecasts do nothing to
dissuade us from that view. Despite considerably more supportive
financial conditions (both realized and assumed) growth beyond
the near term is not expected to be any stronger than the forecasts
when the Bank was on hold. That suggests that the Bank is likely to
cut again at the next opportunity.
Bill Evans, Chief Economist
Prospects for inflation have also been revised down. In November,
the Bank forecast underlying inflation at 2.25-3.25% in 2015;
this estimate has been revised down to 2-3%. That is despite the
assumption around the AUD being revised down from 86¢ in
November to 78¢ in February. The Bank is confident that domestic
inflationary pressures will remain subdued. The Statement notes
that “the direct effects of the exchange rate depreciation since
early 2013 are expected to add a little under 0.5ppts to underlying
inflation over each year of the forecast period.” That calculation
Past performance is not a reliable indicator of future performance. The forecasts given above 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 results ultimately achieved may differ substantially from these forecasts.
2
Westpac weekly
Data wrap
Dec dwelling approvals
• Dwelling approvals came in slightly above expectations in Dec
with a 3.3% fall vs market and Westpac expectations of a 5%
decline. Annual growth slowed to 8.8%yr.
• The Dec reading follows a 7.8% jump in Nov which was driven by
a spike in Melbourne unit approvals associated with the $1.5bn
Batman’s Hill project. While this spike reversed in Dec (total Vic
approvals down 26%) this was partially offset by a 26.9% jump
in NSW that also appears to be a major project-related spike (it
was concentrated in Sydney units and the ‘high rise’ segment).
Accordingly, the underlying trend is likely much softer than the
headline indicates and probably a touch softer than was implied
by the market expectation leading in.
• Private sector house approvals were flat in the month, up just
4.8%yr vs 8.8%yr for total approvals. This segment has been a
good guide to trends in the past but in our view has become less
reliable due to a structural shift towards greater construction of
units. Indeed, the shift, which is seeing more work concentrated
in volatile multi-unit projects, is making analysis more difficult.
'High rise' approvals accounted for 25% of all approvals in 2014
compared to 14% ten years ago and just 5% twenty years ago. By
contrast, other units (i.e. ‘medium density’ housing) have made
up a relatively steady 20% of approvals.
• By state, volatility makes trends difficult to pin-point in NSW and
Vic. Approvals ex high rise appear to be tracking slightly lower in
both states. Qld and WA both recorded slight rises in approvals
while a jump in units gave a bigger boost to SA.
Dec trade balance
• In December, Australia's trade account remained in deficit
for a 9th consecutive month, although there was a modest
improvement. The deficit narrowed to $0.4bn from $1.0bn in
November, (revised from –$0.9bn.)
• Imports declined by 0.7%, meeting our expectations (Westpac
f/c –0.8%). Exports surprised to the high side, increasing by 1.4%
(Westpac f/c –1.2%).
• Net exports are likely to make a positive contribution to growth in
Q4, continuing the trend of recent times, as resource exports rise
on expanding capacity and with imports soft at present.
• The terms of trade, having declined sharply in Q2 and Q3, fell a
little further in Q4, declining by around 1.5% on our estimates.
That has the terms of trade 10% lower in 2014. This double digit
fall has significantly dented Australia's national income, reducing
the spending power of business, households and government.
Dec retail trade
• Retail sales nudged 0.2% higher in Dec, a touch below the
consensus expectation of a 0.3% gain but above Westpac’s
forecast of a 0.1% dip. Quarterly real retail sales were a more
substantive upside surprise with a 1.5% surge well above the
consensus forecast of a 1% gain.
• Our forecast was based on an expectation that an 11% surge
in electronic goods retailing over the previous three months –
largely attributed to the launch of the iPhone 6 – would start to
reverse in Dec. Electronic goods retail instead posted a further
0.6% gain to be up 12.7% since Aug. This sub-category alone
accounts for 0.8ppts of the 2% rise in nominal retail sales since
Aug.
• Retail sales ex electronic goods were up a modest 0.1% in Dec
following gains of 0.2% in Nov, 0.3% in Oct and 0.7% in Sep (up
a cumulative 1.3% since Aug). Within this, a strong month for
clothing (+2.7%mth) was offset by a decline for department
stores (–0.9%mth) and mixed spending on food.
• For the quarter as a whole, the main surprise was around retail
prices. Nominal sales rose 1.4%qtr, only slightly above our
expectation of a 1.3% gain. However the retail implicit price
deflator was dead flat in the quarter vs expectations of a 0.5%
rise. Although the headline CPI was also very weak in Q4 this was
largely due to petrol prices. With petrol not covered by the retail
survey, retail prices were expected to be a bit firmer.
• The real puzzle with the retail survey is working out what it
means for the broader measure of consumer spending in the
national accounts. In simple terms, the 0.5% upside surprise on
Q4 real retail sales is worth about 0.1-0.2ppts on total consumer
spending. However, the retail survey has proven to be a poor
guide in recent years – most recently in Q3, total spending rose
just 0.5%qtr vs a retail sales volume gain of 1%.
• Accordingly we urge caution in putting too much weight on the
retail result – while consumer spending does appear to have lifted
in Q4, a big chunk of this appears to be a temporary productrelated boost and the gain in spending overall may not be nearly
as strong as the retail survey indicates.
Round–up of local data released over the last week
Date
Release
Mon 2
Jan AiG PMI
Jan CoreLogic RP Data home value index
Jan TD–MI inflation gauge, %yr
Dec dwelling approvals
Dec trade balance, AUDbn
RBA policy announcement
Jan AiG PSI
Dec retail trade
Q4 real retail trade
Tue 3
Wed 4
Thu 5
Previous
Latest
Mkt f/c
46.9
0.9%
1.5%
7.8%
–1.0
2.50%
47.5
0.1%
1.0%
49.0
1.3%
1.5%
–3.3%
–0.4
2.25%
49.9
0.2%
1.5%
–
–
–
–5.0%
–0.85
2.50%
–
0.3%
1.0%
Past performance is not a reliable indicator of future performance. The forecasts given above 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 results ultimately achieved may differ substantially from these forecasts.
3
Westpac weekly
New Zealand: week ahead & data wrap
Staying on course
Following recent sharp falls in oil prices and the related softening in
the inflation outlook, there has been speculation about the potential for
interest rate reductions by the RBNZ. RBNZ Governor Wheeler used his
annual speech to the Canterbury Employers' Chamber of Commerce
to clarify his thinking on this. He effectively poured cold water on the
likelihood of near-term rate cuts, noting that the "most prudent option"
at the current time is “a period of OCR stability”. This is very much
in line with our own view. On our forecasts, the most likely scenario
is that we won’t see any change in the OCR until June 2016 at the
earliest.
So what underlies this outlook?
First of all is the current composition of inflation. It’s true that
inflation will be very weak in the near term. But this is in large
part a result of sharp falls in international commodity prices which
the RBNZ looks through when setting policy. This is because OCR
reductions to offset the effects of oil price declines that have
already occurred would have only a limited impact on near-term
inflation. However, they could have unintended and more significant
consequences down the track, particularly in terms of conditions in
the housing market. In addition, as we’ve seen over the past week,
oil prices can swing rapidly. After falling more than 50% last year,
prices bounced over the past week, pushing prices at the pump
back up by around 10¢/ltr – just in time for the long weekend in
New Zealand.
More fundamentally, the current softness in inflation is not a reflection of
underlying softness in the domestic sectors of the economy. Indeed, the
outlook for domestic growth is still firm. This is likely to result in a gradual
increase in longer-term inflation, which is the key focus for the central
bank when setting rates.
Underpinning this strength in the domestic economy is a strong
outlook for housing and construction, particularly in Auckland and
Canterbury. Recent building consents data signal that building
activity is increasing. However, there is still a way to go before
supply catches up with demand. What’s more, there have been
continued gains in house prices. Barfoot and Thompson data
showed that median house prices in Auckland grew by around 2%
(seasonally adjusted) in January to be up 21% over the year. Data
from QV showed that prices are also rising in other cities and
provincial areas, though to a lesser degree.
jobs gains were spread across the economy, with particularly
strong increases in professional services and in government related
sectors. The unemployment rate did pick-up in late 2014, rising
to 5.7% in the December quarter. However, rather than reflecting
any fundamental weakness in underlying economic conditions,
this actually reflects that New Zealand’s strong economic outlook
has encouraged more people to enter the labour force, with the
participation rate rising to a record high of 69.7%.
While the Governor hosed down speculation about rate cuts, he also
emphasised that rate hikes were a long way off. Governor Wheeler
noted that before any rate hikes occurred, the RBNZ would have to
be "confident that capacity utilisation and labour market pressures
were generating, or about to generate, a substantial increase in
inflation." And last week’s labour market data did not indicate
that this is likely in the near term. Indeed, despite solid growth in
employment, wage inflation has remained stubbornly low, with the
private sector ordinary time Labour Cost Index increasing by only
1.8% over the past year.
While our central expectation is for an extended pause, rates cuts are
still an outside possibility. The economy is being buffeted by a range
of forces that could significantly affect domestic activity. Of particular
concern are the dry conditions affecting agricultural production in
parts of the country. Fonterra has already significantly lowered its
forecasts for milk production over the first half of 2015, and sheep
and beef farmers have brought slaughter forward as low prices make
the use of supplementary feed uneconomical. Although recent rains
may help some farmers, production is still likely to be down on last
year.
Tightness in supply resulting from dry conditions is helping to push
up prices for dairy exports (prices rose by an average of 9.4% in
the latest GlobalDairyTrade auction). As a result, we have revised
up our forecasts for Fonterra’s farmgate milk price to $5.00/kg
in 2014/15 and $6.40/kg in 2015/16 - both up 20 c/kg on our
earlier estimates. Nevertheless, overall earnings and spending in
the agricultural sector will be a drag on growth over 2015. Should
conditions in the agricultural sector worsen, or adversely affect
confidence in the economy more generally, this could bring cuts back
onto the RBNZ’s radar.
But it’s not just the housing market that is looking firm. The wider
economy has also been growing at a robust pace. Recent labour
market data showed that employment rose by 3.5% over 2014.
While much of this was due to strength in the construction sector,
Round-up of local data released over the last week
Date
Tue 3
Wed 4
Fri 6
Release
Jan commodity prices
Jan QV house price index %yr
GlobalDairyTrade auction
Q4 employment change
Q4 unemployment rate
Q4 labour cost index
Waitangi Day
Previous
–4.4%
4.9%
1.0%
0.8%
5.4%
0.5%
–
Actual
–0.9%
5.7%
9.4%
1.2%
5.7%
0.5%
–
Mkt f/c
–
–
–
0.8%
5.3%
0.5%
–
Past performance is not a reliable indicator of future performance. The forecasts given above 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 results ultimately achieved may differ substantially from these forecasts.
4
Westpac weekly
Data previews
Aus Q4 residential property price index
Feb 10, Last: 1.5%, WBC f/c: 2.0%
Mkt f/c: 1.9%, Range: 1.0% to 2.5%
• The ABS residential property price index posted another meaty
1.5% rise in Q3 following a 1.9% rise in Q2 and a 1.4% rise in
Q1. Annual price growth cooled a touch from 10.1% in Q3 to
9.1% in Q3.
• In Q4, available private data on 'all dwelling' measures show
gains of 2.3%qtr, 7.1%yr (APM), 1.8%qtr, 7.9%yr (Residex),
and 1.7%qtr, 8.1%yr (CoreLogic RP Data). The ABS measure
tends to track the APM series more closely due to their similar
construction. Accordingly we expect it to show a strong 2.0%
with annual price growth easing back to just over 7%.
Residential property price index, ABS measure
40
% qtr
% ann
qtrly (rhs)
30
10.0
annual (lhs)
7.5
*established house price
index prior to 2004
20
5.0
10
2.5
0
0.0
Sources: ABS, Westpac Economics
-10
Sep-90
-2.5
Sep-94
Sep-98
Sep-02
Sep-06
Sep-10
Sep-14
Consumer Sentiment Index
Aus Feb Westpac-MI Consumer Sentiment
Feb 11, Last: 93.2
• In January, the Westpac-Melbourne Institute Consumer
Sentiment Index rose 2.4%, recovering some of December's
sharp 5.7% fall but leaving the Index still firmly in pessimistic
territory below 100.
130
• The Feb survey is in the field from Feb 2 to 8 and will capture
reactions to the RBA's surprise 25bp rate cut. While ordinarily
this would be a positive for sentiment, the impact is less clear
cut when easing is in response to a downgraded economic
outlook. Other potential positives include lower petrol prices
(pump prices down –6½¢ a litre since the Jan survey) and a
strong surge in the ASX (up 9.7% since the previous survey).
Against this, the continued slide in the AUD may tend to weight
on sentiment (down 4¢ against the USD since the previous
survey), as will the return of political 'tensions' after the
summer break (including a change of state government in Qld).
index
index
120
120
110
110
100
100
90
90
80
80
Sources: Westpac Economics, Melbourne Institute
70
Jan-99
70
Jan-03
Jan-07
Jan-11
Aus Dec housing finance (no.)
Owner-occupier finance & the rate cycle
Feb 11, Last: –0.7%, WBC f/c: 2.0%
Mkt f/c: 2.0%, Range: –0.1% to 4.0%
'000
• Housing finance softened in Nov, both for owner-occupiers
(–0.7%) and investors (value of new finance –2.2%). Stepping
back from the monthly move, finance for the purchase of
existing dwellings is trending a lower, down 8.8%yr while
finance for construction is trending higher (+7.6%yr) as is the
value of finance to investors (+13.0%yr).
• We expect this modest downtrend in owner-occupier activity to
carry into early 2015 before Feb's interest rate cut generates
some renewed momentum. That said, industry data suggests
Dec approvals were up a touch – as such we expect approvals
to show a decent 2% gain in the month.
130
50
%
owner-occupiers
housing finance * (lhs)
Jan-15
* excluding refinance
11
mortgage rate, standard variable (rhs)
9
40
7
30
5
2000’s avg
1995-1999 avg
Sources: ABS, Westpac Economics
20
Nov-98
Nov-02
Nov-06
Nov-10
3
Nov-14
• Note that the ABS has recently revised up estimates of first
home buyer (FHB) approvals from this survey. Incorrect
reporting was found to have been understating this segment by
20%. Even with the mark up, FHB activity remains weak.
Past performance is not a reliable indicator of future performance. The forecasts given above 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 results ultimately achieved may differ substantially from these forecasts.
5
Westpac weekly
Data previews
Aus Jan employment, '000
Feb 12, Last: 37.4k, WBC f/c: 10k
Mkt f/c: –5k, Range: –20k to 20k
• Total employment rose 37.4k in Dec compared to Westpac’s
forecast for a 10k fall. The market had been expecting a 5k rise
with a wide range of estimates from –20k to 25k.
• As 2014 ended there was an uptick in employment with the
annual pace of employment growth lifting to 1.9%yr. Total
employment grew 213.9k through 2014.
• The details highlight broad based strength in the labour market
in the month. Full-time employment lifted 41.6k following a
2.6k rise in Nov while part-time employment moderated –4.1k
following a 42.3k surge in Nov.
Jobs Index peaked as 2014 ended
6
%yr
Index=50
Sources: ABS, Westpac Economics
5
64
60
4
56
3
2
52
1
48
0
44
-1
40
-2
-3
-4
Dec-94
employment (lhs)
Westpac Jobs Index (rhs)
Dec-98
Dec-06
36
32
Dec-02
Dec-10
Dec-14
• The Jobs Index suggests that labour demand peaked at the end
of 2014 and eased a bit heading into 2015. Our 10k forecast
for employment has the annual pace slowing to 1.8%yr.
Aus Jan unemployment rate
Feb 12, Last: 6.1%, WBC f/c: 6.2%
Mkt f/c: 6.2%, Range: 6.1% to 6.3%
• In Dec, the participation rate was basically flat at two decimal
places (64.75% from 64.74% in Nov) with a relatively modest
21.2k rise in the labour force. This limited the improvement
in the unemployment rate to a fall of just 0.1ppt to 6.1% (Nov
was revised from 6.3% to 6.2%) leaving the unemployment rate
only marginally higher than where it ended 2013 (5.9%). Youth
unemployment also eased back to 13.1% from 14.5%.
Unemployment and participation rates
67
%
%
9
participation rate (lhs)
66
unemployment rate (lhs)
Average since March 2008
7
65
Still well above the post
GST peak
64
5
63
• If we hold the participation rate flat at 64.8%, this will generate
a 18.6k rise in the labour force. Given our forecast for a
modest 10k rise in total employment, this will generate a
0.1ppt rise in the unemployment rate to 6.2%.
Sources: ABS, Westpac Economics
62
Dec-98
NZ Jan retail electronic card spending
• A strong underlying spending pulse is consistent with
other indicators of consumer demand at the start of the
year, including rising consumer confidence and an ongoing
resurgence in Auckland’s housing market.
Dec-06
Dec-10
3
Dec-14
Card transactions, annual % change
Feb 11, Last -0.1%, Westpac f/c: 0.4%
• Advance data from Paymark (New Zealand’s largest cards
processor) suggest that electronic retail spending rose 0.4% in
January. That would be a very strong outturn in the context of
plunging petrol prices. We estimate that seasonally-adjusted
petrol prices fell 10% in the month, which on its own would
have slashed in the order of 1.5% off the value of spending.
Dec-02
14
%
%
Core retail
12
14
12
Total retail
10
10
8
8
6
6
4
4
2
2
Source: Statistics NZ
0
2004
0
2006
2008
2010
2012
2014
Past performance is not a reliable indicator of future performance. The forecasts given above 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 results ultimately achieved may differ substantially from these forecasts.
6
Westpac weekly
Data previews
NZ Jan REINZ house prices and sales
REINZ house prices and sales
Feb 13 (tbc), Sales Last: +5.5%, Prices Last: 6.0%yr
• The housing market has had a strong resurgence in recent
months. The waning influence of high-LVR lending restrictions,
lower fixed-term mortgage rates and migration-led population
growth appear to have generated a great deal of pent-up
demand, which was unleased once pre-election uncertainties
were cleared in September.
12
sales 000
%yr
30
25
10
20
15
8
10
6
5
0
• Early indications are that the market may have taken a breather
in January, which is the low point of the year for sales in any
case. However, strong mortgage approvals suggest that house
sales are set to resume their climb in February.
• Annual house price inflation has also begun to accelerate,
although the gains have been overwhelmingly centred in
Auckland. In contrast, there are signs of the Christchurch
market starting to settle down, as repairs and rebuilds increase
the effective housing stock.
4
-5
2
Source: REINZ
0
1993
US Jan retail sales
Sales (lhs)
-10
REINZ house price index (rhs)
-15
-20
1996
1999
2002
2005
2008
2011
2014
US retail sales: is momentum topping out?
Feb 12, Last: –0.9%, WBC f/c: –0.3%
• Retail sales reportedly fell 0.9% in December, and November
was revised down from 0.7% to 0.4%. That left the annual
growth impulse at 3.2%yr, well below the 5.0%yr August peak.
• The decline in the price of oil has been a key contributor to the
weakness in total sales, with gasoline station sales down 6.5%
in December and 14.2% over the year. That said, weakness is
apparent elsewhere, with eight of the remaining 12 store types
also seeing declines in December.
• The fall in the price of oil has produced a material improvement
in confidence and household income expectations, which
should support spending. Yet reports of soft conditions over
the holidays point to the spending response being restricted by
weak actual wage growth and existing debt liabilities. With the
oil price declining further in January, we expect another decline
in total sales, circa –0.3%.
9
% ann
% mth
6
6
4
3
2
0
0
-2
-3
mthly ex-autos & gas (rhs)
-6
Retail sales
-9
-6
Retail ex autos & gas
-12
Sep-09
Sources: Ecowin, Westpac Economics
Sep-10
Sep-11
Sep-12
Sep-13
-4
-8
Sep-14
13
Euro Area Q4 GDP
Contribution to Euro area annual growth
Feb 13, Last: 0.2%, WBC f/c: 0.2%
• Q3's 0.2% headline outcome was a positive surprise, albeit only
just at 2 decimal places (0.16%).
2.5
annual average growth
ppts
2.0
1.5
• By country, the surprise came from France, where activity
jumped 0.3% in Q3 following a 0.1% fall in Q2. Also, Spain
posted another quarter of solid growth, 0.5%. Elsewhere
amongst the majors, momentum was decidedly absent.
• Q4 is likely to see an improved performance on the part of
Germany (growth circa 0.3%); and Spain has already reported a
robust 0.7% gain. Unfortunately the impetus provided by these
nations will be mitigated by flat outcomes in Italy and France.
• Overall, the above constellation of results will most likely produce
another 0.2% aggregate outcome, and leave annual growth for the
region unchanged at a meagre 0.6%yr.
ppts
HH consumption
Investment
Gov't consumption
Net exports
2.5
2.0
1.5
GDP growth
1.0
1.0
0.5
0.5
0.0
0.0
-0.5
-0.5
-1.0
-1.0
-1.5
-1.5
-2.0
-2.0
Source: Westpac Economics
-2.5
-2.5
2011
2012
2013
2014
2015
2016
14
Past performance is not a reliable indicator of future performance. The forecasts given above 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 results ultimately achieved may differ substantially from these forecasts.
7
Westpac weekly
Key data & event risk for the week ahead
Last
Sun 8
Chn
49.61
48.0
1695
697
12.2%
2200
1364
12.2%
RBA Governor Stevens speaking
Feb Sentix investor confidence
Jan Halifax house prices
Jan Labour market composite index
–
0.9
0.9%
6.1
–
–
0.0%
–
–
–
0.2%
–
Tue 10
Aus
Q4 ABS residential property prices
Jan NAB business survey
Chn
Jan CPI %yr
Jan PPI %yr
UK
Jan BRC like-for-like sales
Dec industrial production
US
Jan NFIB small business optimism
Dec wholesale inventories
Feb IBD/TIPP economic optimism
Dec JOLTS job openings
1.5%
4
1.5%
–3.3%
–0.4%
–0.1%
100.4
0.8%
51.5
4972
1.9%
–
1.0%
–3.8%
–
0.2%
101.0
0.1%
51.5
–
2.0%
–
–
–
–
–
102.0
0.2%
52.0
–
Strong gain in Q4 but annual growth moderating to ~7%.
In Dec: conditions around LR avg at +4, but confidence below LR avg.
Administrative energy price adjustments are now more frequent.
Tiers of deflation: raw, then basic materials, capital goods, csr durables.
Will softer tone of Q4 continue into the new year?
Construction surprised to downside in Nov; oil & gas also weighed.
Notable improvement as oil price has fallen.
Inventories were big support for growth in Q4.
Confidence has received strong support from oil and labour market.
A longer survey period and broader report than payrolls, but is dated.
Wed 11
Aus
Feb Westpac-MI Consumer Sentiment
Dec housing finance
NZ
Jan Retail card spending
US
Jan monthly budget statement, $bn
93.2
–0.7%
–0.1
2.0
–
2.0%
–
–2.6
–
2.0%
0.4
–
What impact will RBA rate cut have? Drag from PM leadership turmoil?
Dec to show slight kick up with-in a clear gradual downtrend.
Strong underlying spending growth, tempered by plunging petrol prices.
Return to marginal deficit after marginal surplus in December.
Thu 12
Aus
Jan employment, '000
Jan unemployment rate
Feb MI Consumer Inflation Expectations
NZ
Jan Business NZ PMI
Jpn
Dec machinery orders %mth
Inr
Dec industrial production %yr
Jan CPI %yr
Php
BSP policy decision
Eur
Dec industrial production
UK
Bank of England inflation report
Jan RICS house price balance
US
Jan retail sales
Initial jobless claims
Dec business inventories
Can
Jan house prices
37.4
6.1%
3.2%
57.7
1.3%
3.8%
5.00%
4.00%
0.2%
–
11%
–0.9%
278k
0.2%
–0.2%
–5
6.2%
–
–
–
–
–
4.00%
0.3%
–
–
–0.4%
–
0.2%
–
10.0
6.2%
–
–
–
–
–
4.00%
–
–
–
–0.4%
–
0.2%
–
Employment picked up as 2014 ended but the Jobs Index has peaked.
If participation is falt, 10k employment will see a rise in unemployment.
Down from 4.1% in Nov, falling petrol should have dragged them further.
Business conditions are expected to remain firm.
Modest growth foreign segment, private domestic still weak, public firmer.
Capex is on the turn trendwise, but infra. sectors slowed in mth of Dec.
Another instalment in the disinflation story that has emboldened RBI.
With Q4 GDP bounce & oil crash, Goldilocks is loose on the archipelago.
Down 0.4%yr; weaker Euro should support hence, world perhaps less so.
Focus is on current disinflationary concerns, not inflation further out.
Fell to its lowest level in 19 months in Dec; suggests price g'th waning.
Petrol price weakness to continue in Jan; but core likely soft.
Trend rise in jobless claims likely as oil price fall sees job losses.
Inventories were big support for growth in Q4.
Teranet/ National Bank measure.
–
0.3
5.5%
6.0%
–6.8
0.2%
20
98.1
–1.4%
–
–
–
–
–
0.2%
–
98.1
–1.0%
–
–
–
–
–
0.2%
15
98.5
–
Parliamentary Testimony, 9:30am.
Poor growing conditions could boost some prices.
Due this week. Sales have rebounded strongly in recent months.
House price acceleration has been dominated by Auckland.
Main interest in the funding side given the current global environment.
Another soft quarter as ECB policy impeded by state of union.
Weaker Euro to continue to provide boost to region's exporters.
Uni of Mich measure; lower oil price equates to stronger to confidence.
Jan decline led by motor vehicles; third decline in four months.
Chn
Mon 9
Aus
Eur
UK
US
Fri 13
Aus
NZ
Idr
Eur
US
Can
Jan trade balance, USDbn
sometime this week
Jan total credit RMBbn
Jan new loans RMBbn
Jan M2 money supply %yr
Market Westpac
median forecast Risk/Comment
RBA Governor Stevens speaking
Jan Food Price Index
Jan REINZ house sales
Jan REINZ house price index %yr
Q4 current account, USDbn
Q4 GDP
Dec trade balance, €bn
Feb consumer confidence, prelim
Dec manufacturing sales
– X expected to slow seasonally, M likewise, but workday impact +ive.
– Annual pre-funding splurge an important marker for the year ahead.
– Policy stance has eased, but has prospective borrower sentiment lifted?
– Liquidity tightened over January into early Feb leading to RRR cut.
Remarks, RMB Clearing Bank launch ceremony, Sydney 11:15am.
ECB decision strong support for markets; but duration open question.
Tentative date; prices up 7.8%yr, momentum waning?
The Fed's composite labour indicator.
Past performance is not a reliable indicator of future performance. The forecasts given above 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 results ultimately achieved may differ substantially from these forecasts.
8
Westpac weekly
Economic & financial forecasts
Interest rate forecasts
Latest (6 Feb)
Mar 15
Jun 15
Sep 15
Dec 15
Mar 16
Cash
2.25
2.00
2.00
2.00
2.00
2.00
90 Day Bill
2.40
2.20
2.20
2.20
2.22
2.25
3 Year Swap
2.22
2.20
2.20
2.40
2.50
3.00
10 Year Bond
2.40
2.40
2.50
2.70
2.90
3.20
59
50
50
50
40
40
0.125
0.125
0.125
0.250
0.500
0.750
1.81
1.90
2.00
2.20
2.50
2.80
10 Year Spread to US (bps)
International
Fed Funds
US 10 Year Bond
US Fed balance sheet USDtrn
4.54
4.54
4.54
4.54
4.54
4.54
ECB Repo Rate
0.05
0.05
0.05
0.05
0.05
0.05
Cash
3.50
3.50
3.50
3.50
3.50
3.50
90 day bill
3.64
3.70
3.70
3.70
3.70
3.75
2 year swap
3.54
3.50
3.60
3.70
3.80
4.00
10 Year Bond
3.19
3.30
3.40
3.50
3.70
3.90
10 Year spread to US
138
140
140
130
120
110
Latest (6 Feb)
Mar 15
Jun 15
Sep 15
Dec 15
Mar 16
AUD/USD
0.7799
0.75
0.77
0.78
0.79
0.81
NZD/USD
0.738
0.71
0.73
0.74
0.75
0.77
USD/JPY
117.50
118
120
122
124
124
EUR/USD
1.1475
1.14
1.15
1.15
1.16
1.17
AUD/NZD
1.0540
1.05
1.05
1.05
1.05
1.05
New Zealand
Exchange rate forecasts
Australian economic growth forecasts
2014
GDP % qtr
annual change
2015
Calendar years
Q2
Q3
Q4f
Q1f
Q2f
Q3f
Q4f
2013
2014f
2015f
2016f
0.5
0.3
0.6
0.7
0.7
0.8
0.8
2.1
2.7
2.7
3.5
2.7
2.7
2.5
2.2
2.4
2.8
3.0
–
–
–
–
Unemployment rate %
6.0
6.1
6.2
6.2
6.4
6.4
6.4
5.8
6.2
6.4
6.0
CPI % qtr
0.5
0.5
0.2
–0.1
0.6
1.0
0.6
–
–
–
–
3.0
2.3
1.7
1.1
1.2
1.8
2.1
2.7
1.7
2.1
3.0
0.7
0.4
0.7
0.5
0.5
0.6
0.5
–
–
–
–
2.8
2.5
2.2
2.2
2.1
2.3
2.2
2.6
2.2
2.2
2.5
annual change
CPI underlying % qtr
annual change
New Zealand economic growth forecasts
2014
2015
Calendar years
Q2
Q3
Q4f
Q1f
Q2f
Q3f
Q4f
2013
2014f
2015f
2016f
GDP % qtr
0.7
1.0
1.0
0.4
0.4
1.0
1.0
–
–
–
–
Annual avg change
2.8
2.9
3.3
3.3
3.2
3.1
2.9
2.2
3.3
2.9
3.6
Unemployment rate %
5.6
5.4
5.7
5.5
5.3
5.0
4.8
6.0
5.7
4.8
4.3
CPI % qtr
0.3
0.3
-0.2
-0.3
0.3
0.4
0.2
–
–
–
–
Annual change
1.6
1.0
0.8
0.2
0.3
0.3
0.7
1.6
0.8
0.7
2.3
Past performance is not a reliable indicator of future performance. The forecasts given above 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 results ultimately achieved may differ substantially from these forecasts.
9
Disclaimer
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