Australia and New Zealand - Weekly Prospects
* The highlight in Australia last week was the RBA's quarterly Statement on Monetary Policy. The central bank's hawkish
verbiage signalled clearly that interest rates would rise further. JPMorgan now expects the RBA to raise rates 25bp in
March and May. Reinforcing the case for higher interest rates, other data showed that the jobless rate fell to just 4.1%
in January, its lowest level since 1974. Tightening labour market conditions mean that this week's labour price index
probably will show wage growth accelerating in 4Q. JPMorgan forecasts that wages will grow 1.2%q/q in the December,
compared to 1.0% in the previous three months.
* In New Zealand, the highlight in what is looking to be a quiet week, will be the RBNZ's inflation expectations survey.
The survey is likely to show a slight uptick in inflation expectations in line with rising food and fuel prices. Last
week delivered a series of weak data points, with both housing market reports (REINZ and QVNZ) pointing to a severe
slowdown in activity and retail sales coming in below market expectations. There is now some downside risk to our
conservative 0.6%q/q GDP growth forecast for 4Q. In other data, New Zealand's PPI report showed firms are continuing to
pass through higher costs, and there is building inflation in the pipeline.
* As the US moves through the first months of the year, growth has stalled but it does not appear that the economy has
slipped into recession. In the face of a substantial purchasing power drag from rising energy prices and tighter credit
availability, consumption growth has slowed to a crawl. But households are not magnifying the effects of the drags by
building precautionary savings. Similarly, firms are cautious and adjusting their hiring and spending plans in the face
of weaker growth. However, the sharpest adjustments remain concentrated in sectors and regions related to the housing
downturn. Export growth remains a source of strength, bolstering production and corporate balance sheets. While labour
demand has softened, a surge in new layoffs that would be the hallmark of a slide into recession is not under way.
* Japan's GDP outcome was the big surprise on Friday. A major factor was business equipment spending, which posted a
double-digit gain rather than contracting as anticipated. The government indicated that robust auto investment and
software spending, which are not counted in core capital goods shipments (which plunged in 4Q), explain the deviation.
The main message of the GDP report is that the corporate sector remains an expansionary force in the economy. This
squares with the continued strong growth of employment (up 1.7%oya in December) and the high level of corporate profit
margins. That said, business spending continues to be paced by large firms, as evidenced by the sharp divergence of
large and small firm sentiment. GDP growth is likely to turn soft in the near term as exports and IP lose momentum, but
if capex holds up, there is less risk that Japan will tip into recession.
See... AusNZ_weekly_18feb08.pdf