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Economic Weekly: Frenemies, and an update on our views

Bit on last week! We got updates on an avalanche of acronyms: OCR, FLP, LSAP, LVRs, REINZ…, there was some encouraging vaccine news, and the RBNZ and housing became official frenemies. We’ve briefly outlined below the net impacts on our views:

  • We no longer expect the RBNZ’s Official Cash Rate to be taken into negative territory. Instead, we think it will remain at 0.25% for the foreseeable future. This reflects our view that the RBNZ’s Funding for Lending Programme (FLP) will be successful, as well as ongoing resilience on the part of the domestic economy.
  • Consistent with the above, we’ve fine-tuned our interest rate forecasts. You will no longer find a negative sign anywhere in our swap forecasts and additional downside is expected to be limited. We’re not sure if last week’s 10-20bps lift in the swaps curve will be sustained, but the risks do seem to favour further curve steepening.
  • By contrast, we still expect retail interest rates to keep falling. We’ve long held the view that the FLP would add to downward pressure on rates. We see 1- and 2-year mortgage rates falling towards 2% over the coming 12 months. Term deposit rates have more downside too.
  • We think last week’s COVID vaccine news was indeed a positive development for the medium-term economic outlook. Yes, it’s only the first step with many regulatory and logistical hurdles still to be cleared. But the important part is we now have that first step. It’s positive for confidence, and uncertainty has reduced a little (the same could be said for the US election). At the margin, this may help shore up hiring/nvestment intentions.
  • Also notable on the global scene, our CBA colleagues now expect a stronger Australian economic recovery. The expected 2020 fall in GDP of 3.3% is forecast to followed by a rebound of 4.2% in 2021, and 3.8% in 2022.
  • Finally, house prices. They rose at the fastest pace in 17 years in October according to last week’s REINZ data. Having initially lauded the housing boom for helping to rescue the recovery, it’s quickly become a headache for the RBNZ, regardless of whether it believes it’s responsible.  We think it will get worse. We’ve been calling for LVR restrictions to be returned and they now will be, in March. But we suspect this will slow rather than stall house price acceleration. House prices look set to easily eclipse the RBNZ’s latest forecast.

Contact us

Jane Turner

Senior Economist

Originally hailing from sunny Nelson, Jane moved to Auckland to join the ASB team in 2008.  As Senior Economist, Jane's main focus is co-ordinating the team’s macro-economic forecasts.  In this key role, Jane was thrilled by the team’s twice consecutive win of the Consensus Economics Forecast Accuracy award.   

During her decade-long career in economic forecasting, Jane has gained a thorough knowledge of the New Zealand economy.  Her current focus is on New Zealand GDP growth, including both manufacturing and the construction sectors.  She has spent time forecasting most sectors of the economy, including inflation, trade, housing, labour and financial markets.

Prior to joining ASB, Jane honed her macro-economic forecasting skills at the Reserve Bank of New Zealand.  Jane is a qualified scarfie, attending Otago University and graduating with a Bachelor of Commerce in Economics with 1st class honours.  In 2014, she took a career break from ASB to travel the world and learn to snowboard.

Mark Smith

Senior Economist

Mark joined ASB in 2017, with over 20 years of public and private sector experience working as an economist in New Zealand and the UK.

His resume includes lengthy stints at ANZ and the Reserve Bank of New Zealand, and he has also worked at the Bank of England, HM Treasury and the New Zealand Transport Agency. Mark's areas of specialisation include interest rate strategy, macro-economic analysis and urban economics.

Born and bred in the Waikato, Mark studied at Waikato University where he graduated with a Master of Social Sciences, majoring in Economics.

Mark's key strengths are the ability to use his extensive experience, inquisitive nature, analytical ability, creativity and pragmatism to dig a little deeper and to deliver common sense solutions to tackle complex problems.

When not at work Mark likes to travel, keep fit and spend time with his friends and family.

Mike Jones

Senior Economist

Mike joined ASB in 2019 armed with almost 15 years of experience in applied macroeconomic and financial markets analysis.

Mike's career has been all about distilling the risks and opportunities of economic and financial market trends for business. Basically asking the "what does it all mean" question. Mike's enthusiasm and skill for drawing out practical, commercial insights from the murky world of economics has been honed over a relatively broad base of experience.

After spending the early part of his career on the tools at the Reserve Banks of both NZ and Australia, Mike had a lengthy stint at BNZ where he was NZ’s top-ranked currency strategist. His regular and topical macro research also saw him pick up several FX forecast accuracy gongs from Bloomberg.

Drawn in by the prospect of putting strategy into practice, Mike moved from Wellington to Auckland in 2013 to join Fonterra as GM Treasury Risk Management. In this role, Mike lead Fonterra’s macroeconomic research output, and was responsible for the strategy and execution of Fonterra’s foreign exchange, debt, and interest rate hedging programmes.

mike.jones@asb.co.nz