Australia and New Zealand - Weekly Prospects
• There were no surprises from the RBA’s decision to leave the cash rate steady, with the highlight of a slew of economic
data released in Australia last week undoubtedly being the June employment report. The fall in employment was not as sharp as we had forecast,
although it was entirely due to a drop in full-time jobs. With labour force participation still elevated, the jobless
rate will probably continue to rise significantly. We no longer believe RBA officials will wait for unemployment to peak
before starting to take back the current policy accommodation; this would be a break from historical convention. We
forecast the RBA’s next move will be a hike in 2010.
• The NZIER Quarterly Survey of Business Opinion last week reaffirmed our expectation that the New Zealand economy will contract again in 2Q and 3Q, marking seven straight quarterly GDP declines. Scheduled for release this week
are the retail sales data for May and the 2Q CPI report. The retail sales numbers released this morning were much
stronger than expected, though this strength is unlikely to be sustained given that unemployment is set to rise.
Headline inflation (Thursday) should print back within the RBNZ’s target range. Lower food prices will be the major
downward force on headline CPI, particularly prices of fruit and vegetables
• The transition of the global economy from recession to recovery is taking place faster than expected. Industrial output posted its second consecutive
monthly gain in May, with output rising a full 1% m/m. Global consumption is also on an upward trajectory into midyear.
Most striking is the bounce in auto sales. Our estimates point to a strong 1.4mn-unit rise in June on the back of an
already significant increase during the first five months of this year. After collapsing 25% in 2008, auto sales have
recovered two thirds of their decline.
• The recent growth in global manufacturing and consumption is largely a non-US affair. Indeed, US manufacturing looks set to fall again in June with output
tracking a double-digit pace of decline in 2Q09. US consumption also probably dropped last quarter, while solid spending
gains are being recorded in the Euro area and Japan, along with significant consumption growth in other Asian economies.
Fiscal incentives have promoted the impressive climb in auto sales outside the US, but these incentives are not
undermining growth in other components of consumer spending.
• This week’s reports should confirm that China’s economy boomed in 2Q. Our forecast calls for a nearly 15%q/q, saar increase in GDP, but comments from the National Bureau of
Statistics suggest that the gain may have been closer to 20%. The accompanying June activity releases will continue to
show that this burst was driven by domestic demand. Last week’s trade data underscore this point, as exports slipped in
June (vs May) whereas the recent import surge continued. Policy stimulus is playing an important role, but the increases
in expenditures extend well beyond that support. One of the most striking developments is the surge in vehicle sales,
which have increased by almost two thirds from around 6mn units (saar) to over 10mn units in the past six months.
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