Aus/NZ. Weekly Prospects - Aussie forecast changes

Australia and New Zealand - Weekly Prospects - Aussie forecast changes

After a flood of Australian economic data in recent weeks, and an avalanche of RBA commentary, the river runs dry this week. In fact, the economic data flow almost is nonexistent, with just the WMI leading index to keep the punters interested. We’re not - this thing never moves markets. Tuesday, though, sees the release of the minutes from the RBA’s August Board meeting. There is, however, little that can be added to the policy debate; recent RBA commentary clearly has identified the shift in policy bias from “easy” to “neutral”. This shift was reinforced firmly by Governor Stevens in his Parliamentary testimony last Friday - Mr. Stevens indicated that the cash rate will not be kept an “emergency” setting of 3% for much longer. There is, though, no rush; the first tightening probably will come in February 2010. Apart from this week’s Board minutes, there are a couple of stray speeches on the agenda. RBA Assistant Governor Dr. Malcolm Edey speaks on the global financial crisis on Wednesday, and Treasury Secretary Ken Henry speaks later the same day on the implications of his tax review.

• We are pushing through three important changes to our Aussie economic forecasts this week. First, we are upgrading expected GDP growth for 2009 and 2010. Second, we have lowered our expected peak in the unemployment rate from 9% to 8%. Third, we dragged forward our RBA call to February 2010; previously, we had the tightening cycle kicking off in June. See the research note from page 4 for details.

• In New Zealand, the economic calendar was quiet last week until the release on Friday of the June quarter retail sales numbers. Ex-auto sales again were weak in value terms, falling 0.4% over the month. Volumes, though, grew by 0.4%q/q, as we had expected, which will buoy the consumption component of GDP in 2Q09.

• Last week’s data continued to build the case for a second-half bounce in global growth, led by a revival in the manufacturing sector. As more 2Q GDP reports come in, it is becoming clear that a substantial number of countries already had emerged from recession last quarter, including Germany and France, a broad swath of Emerging Asia and, as we are likely to learn today, Japan. What is more, the composition of these reports is constructive, with final demand tending to be firmer than expected, accompanied by a large drag from business inventories. Newly released June data point to a gargantuan, 8.6% plunge in US business inventories in 2Q.

• This combination of firming final demand and plunging inventories has set the stage for a powerful lift in global industry, as firms begin to close the gap between the level of output and sales. As each week passes, we get more confident in our prediction that global manufacturing output is set to boom at an 8% annual rate in 2H09. Leading indicators already pointing in this direction include our global PMI order to inventory ratio, and the continued robust momentum in Asian exports. Last week’s IP reports delivered the first concrete downpayment on the 2H forecast, with output surging at a nearly 1%m/m pace in both the US and China in July.

Aus/NZ Weekly Update August 17 (pdf)

ENDS

© Scoop Media