Global soft landing anticipated by OECD

Kia ora,

Welcome to Thursday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

And today we lead with news the OECD doesn't see New Zealand's OCR being cut until 2025.

But first, American mortgage application levels were little-changed last week from the prior week and are now running -19% lower than a year ago as the lower base settles in. Mortgage rates dipped again, but this time only slightly.

The second estimate of Q3-2023 US economic activity has brought something of a positive surprise. It expanded +5.2% in this revision, higher than 4.9% in the preliminary estimate, and forecasts of 5% and that marks the strongest growth since Q4-2021. Driving the improvement were both higher investment levels, and better-than-expected company profits (even if they were -1.7% lower than the same quarter a year ago). This is the best the US economy has performed since late 2021 when they had the post-pandemic rebound. Prior to that, you have to go back to the post-GFC rebound. For a non-rebound comparison it is the best since pre-GFC levels. Although it isn't getting any credit, Bidenomics is actually working rather well.

That expanded activity is actually shrinking inventories, both retail and wholesale inventories. That is not a sign recession is imminent.

Singapore's producer prices show an extended era of deflation in their manufacturing sector. They have been in this all 2023.

Germany said its consumer inflation is running at 3.2% in November. (On an EU harmonised basis, it is running at 2.3%.) It is falling fast; you may recall it was running at 6.1% in August. The ECB will be pleased to see this progress in the bloc's largest economy.

Meanwhile, economic sentiment in the the overall EU turned up in November, albeit it is still quite low.

Australia releases a monthly inflation indicator, and the release late yesterday was for October with a 4.9% rate. That is down from 5.6% in September and well below the expected 5.2% rate.

Australian construction work completed got a late burst higher in the September quarter, rising more than expected to be +8.5% higher that in the same quarter a year ago. But most observers now expect lower levels in future because the construction project pipeline is light.

More generally, the OECD said global growth is projected to be 2.9% in 2023, and weaken to 2.7% in 2024. As inflation abates further and real incomes strengthen, the world economy is projected to grow by 3% in 2025. Global growth remains highly dependent on fast-growing Asian economies, especially India. Europe is at the bottom of their list. 

They see New Zealand expanding just +1.3% in 2024 and by +1.9% in 2025, both at about the same for the average OECD nations. (And that is very similar to the modest forecasts for Australia.) In their view our OCR will need to remain at 5.5% until the end of 2024 and then can be cut gradually to 4.25% by the end of 2025 as inflation approaches the middle of the Reserve Bank’s 1-3% target range. They don't see any further rate hikes in Australia either.

The UST 10yr yield is down another -9 bps from yesterday, now just under 4.28%. 

The price of gold will start today just on US$2042/oz and up +US$2/oz from this time yesterday.

Oil prices have risen +50 USc since yesterday at just over US$77.50/bbl in the US. The international Brent price is now just over US$82.50/bbl.

The Kiwi dollar starts today at 60.7 USc and falling back -¾c from yesterday. Against the Aussie we are +20 bps firmer at 92.4 AUc. Against the euro we are back down -40 bps at 55.5 euro cents. That all means our TWI-5 starts today just under 69.6 and down -30 bps from this time yesterday. The RBNZ hawkish message brought a very brief spike yesterday afternoon, up to 70.3, but that evaporated quickly overnight.

The bitcoin price starts today at US$37,795 and almost unchanged (-0.1%) from this time yesterday, and extending its meandering. Volatility over the past 24 hours has remained modest at just on +/- 1.1%.

You can find links to the articles mentioned today in our show notes.

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. And we will do this again tomorrow.