Australia &

New Zealand
weekly.

Week beginning 3 April 2017

RBA: policy announcement - on hold; housing excesses to ease.

Australia: retail sales, dwelling approvals and trade balance.

NZ: Quarterly Survey of Business Opinion.

FOMC: March meeting minutes.

US: employment report.

Key economic & financial forecasts.

Information contained in this report was current as at 31 March 2017

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 Westpac weekly

RBA on hold; housing excesses to ease

The Reserve Bank Board meets next week. It is certain to keep
rates on hold. The minutes of the March board meeting were less
upbeat on the economy than we had seen in previous assessments.
While I was meeting with customers and officials in Asia, my
colleagues assessed the minutes as "The overall theme is still of
upside risks from global growth and commodity prices near term
but a likely muted pass through to local conditions and question
marks beyond 2017".
Readers will be aware that our central theme for the Australian
economy has been for slightly above trend growth in 2017,
partly reflecting the boost to the terms of trade and the ongoing
construction boom, to be followed by an abrupt slowdown in 2018
as construction contracts and the terms of trade reverse.
With the Reserve Bank sharing our caution around 2018, along
with ample capacity in the labour market (unemployment rate is
5.9% compared to full employment rate of 5.0%) and stubbornly
low wages growth, there is only scope to cut rates. But as we have
argued consistently, a resurgent housing market disallows such
a policy option. Indeed, the minutes refer to a build- up of risks
associated with the housing market. A tighter macro prudential
stance seems appropriate.
largely reflecting increases in investor rates by the four majors.
Complementing these rate adjustments with a more constraining
restriction on new lending to investors (as well as to owner
occupiers for interest only loans) is likely to yield a comparable
response in house prices as 2015.
By years end, the RBAs concerns with a build- up of risks
associated with the housing market are likely to have eased.
As we move into 2018, despite ongoing rate hikes by the Federal
Reserve, the Reserve Bank, troubled by low inflation; on-going spare
capacity in the labour market; and weak wages growth might be
tempted to ease policy further.
However, the lessons of 2016 will have been learnt do not risk
re-igniting house prices and a more prudent approach will be to
rely on the currency to provide the boost to activity.
From our perspective, a reversal of the commodity price boom of
2017, coupled with Australias cash rate falling below the US, is
likely to yield a sharp lift in Australias competitiveness.
Bill Evans, Chief Economist

Indeed, as we go to press, APRA has announced new controls, Figure: 1

restricting the "flow of new interest-only lending to 30 per cent of
total new residential mortgage lending" with a particular focus on Dwelling prices - macro prudential works so do rates
limiting interest only loans with a loan-to-value ratio above 80%.
ann% ann%
Currently, "interest-only terms represent nearly 40 per cent of the 20
* all dwellings,
20
stock of residential mortgage lending by ADIs", so this policy will composite of all rate
cuts
15 measures, seasonally 15
restrict the terms at which a marginal borrower can access credit adjusted, 6mth
(investors and owner-occupiers). APRA also noted that they want 10
annualised growth
10
banks to manage growth in investor credit to "comfortably remain
below the previously advised benchmark of 10 per cent growth". 5 5
This is not a hard change to the target as had been mooted recently
in the press (some suggesting the 10% limit could be as much as 0 0
Sources: ABS, ,
macro-
halved), but it does suggest lending to investors will continue to -5 prudential
CoreLogic, APM,
Residex, RBA, -5
grow at a pace meaningfully below 10%. Looking ahead, the next tightening Westpac
Economics
RBA Stability Review (April 13) may provide more clarity on the -10 -10
macro prudential policy outlook and potential triggers for further Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17
action. For the time being though, the 2015 experience offers an
understanding of the potential impact of this further tightening. Figure: 2

Figure1 shows the slowdown in house price appreciation that came Weighted average Big 4 variable mortgage rate
as a result of curtailing investor loan growth to 10% in 2015. Those
direct controls on lending volumes were complemented by interest % %
6 6
rate adjustments by the banks themselves. Figure 2 shows our 5.91% Sources: WBC, CBA, ANZ, NAB,
RBA, APRA, Westpac Economics
estimate of the changes in the weighted average of the variable
mortgage rate (including investors and owner occupiers) in 2015. 5.8 5.8
5.71%
We estimate that during that period, the weighted average rate
lifted from 5.44% to 5.71%. Of course, that lift was more than fully 5.6 5.6
offset by subsequent rate cuts by the RBA in 2016, pushing the 5.51%

weighted average rate down to 5.34%. As we see in Figure1, that

cut re-ignited house price growth as well as auction clearance rates 5.4 5.44%
5.4
and new lending. *Based on interest only loan proportions of 24%
5.34%

for owner occupiers and 55% for investors.

5.2 5.2
The RBA has already been given a start in this current cycle, 01/2014 01/2015 01/2016 01/2017
with the weighted average rate lifting from 5.34% to 5.51%,

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to
ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown
risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.
2
 Westpac weekly

Data wrap

Aus Feb private sector credit Housing credit grew by 6.7% annualised in the six months to
February 2017. That is up from a low of 6.0% in mid-2016 but
Credit to the private sector grew by 0.3% in February following well below the high of 7.6% in September 2015. Investors have
January's soft gain of 0.2%. This is in part a correction from the led the way. Credit growth to the investor segment is moving at a
surge in December 2016 of 0.7%, though it does bring annual 8.5% six month annualised rate.
credit growth down to 5.0%yr. The volatile business segment was
again the driver. For businesses, as noted above, the July 2016 Federal election
saw some place investment/borrowing plans on hold. New
Business credit had a strong finish to 2016 - up 1.1% in lending, commercial finance, has had a wild ride: tumbling 20%
December - following a period of subdued credit growth as a in the two months to June, followed by a sharp rebound late in
number of businesses postponed their investment/borrowing 2016 which was subsequently unwound (see chart overleaf).
plans due to uncertainty associated with the July 2016 Federal It's worth noting that business confidence, which was relatively
election. February's reading of -0.1% and January's contraction resilient, has moved higher to be at a little above average levels.
of -0.4% reflects volatility in commercial finance and business
credit. Looking forward, the dip in business credit growth is likely to be
temporary, while a tightening in lending rates and regulation on
Housing credit grew by 0.57%, consistent with growth in the investor/interest only loans will slow housing credit growth.
previous six months but an improvement from a softer patch
between March and July 2016.
Investor housing is still ahead, up 0.64%, while owner-occupier
housing rose 0.48%. Recent independent rate hikes to investor/
interest-only loans, and a regulatory cap on new interest-only
loans - with prospects of further macro-prudential tightening
- point to a slowdown in housing credit growth evident in the
experience of 15/16.
Earlier, credit growth progressively lost momentum through mid-
2015 to mid-2016. Monthly growth slowed from an average pace
of: 0.65% for 2015 Q3, to 0.5% for 2015 Q4 and for 2016 Q1; it
then slowed further to 0.4% for 2016 Q2 and Q3. In 2016 Q4,
monthly growth rebounded to 0.6% on average, boosted by the
particularly strong result for business.
That earlier loss of momentum in lending to households and
businesses was largely due to a tightening of lending conditions
in the housing market that occurred over the second half of
2015 and the temporary impact from the July Federal election.
We expected a modest rebound in credit growth and that has
borne out.

Roundup of local data released over the last week

Date Release Previous Actual Mkt f/c
Fri 31 Fed private sector credit 0.2% 0.3% 0.5%

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to
ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown
risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.
3

New Zealand: week ahead & data wrap
In most of New Zealands regions, confidence in economic
conditions softened in early 2017. Many New Zealanders are
also feeling less upbeat about their personal economic situation.
However, the recent softening in confidence follows some solid
gains over the past year, and still leaves us with a relatively healthy
outlook for the New Zealand economy.
Each quarter Westpac and McDermott Miller survey the attitudes
of more than 1,500 households across the country in relation
to general economic conditions and their own personal financial
situation. The result of the latest survey showed confidence in the
outlook for most regions softened in March quarter. The survey also
showed that New Zealanders have become a bit less upbeat about
the health of the labour market.
However, its important to put the recent softening in confidence in
context. While confidence did ease in early 2017, this comes on the
back of solid gains in late 2016. Residents in most regions are more
confident than they were six months ago, and much more so than a
year ago.
When we look at the broader economic backdrop, it isnt surprising
that confidence remains healthy. At a national level, GDP growth
picked up to 3.1% in 2016, generating jobs and encouraging more
people into the labour force. And importantly for regional prospects,
the drivers of growth have become increasingly broad based. After
two lousy seasons, better dairy incomes are now hitting farmers
pockets, and conditions for other commodity producers, including
beef and horticulture, have remained positive. Most regions are
also benefitting from rising tourist numbers, a pick-up in population
growth, and increasing house prices (that said, the pace of house
price growth has slowed in some regions in recent months, with
prices flattening off in the case of Auckland and Christchurch).
Looking at some of the results by region, Southland topped the
leader board this quarter, for the first time since 2012. With one
of the countrys highest exposures to dairy, the improved outlook
for dairy incomes has no doubt played a key role in boosting
confidence. Other major dairying regions like the Waikato, Taranaki
and Manawatu-Whanganui have also moved up the ranks over the
past year. But as these regions have risen up the ranks, the Bay of
Plenty has stumbled back into the middle of the pack this quarter,
after dominating the number 1 spot for the past 18 months.
Auckland remains the least optimistic region in the country.
Confidence in the regions economic outlook has been on a
downward spiral for the past couple of years, and only a net 7%
of residents expect the regions economy to improve over the
1 Theresults of the March quarter regional survey are available here: http://www.westpac.co.nz/assets/Business/Economic-Updates/2017/Bulletins-2017/Q1-Regional-Economic-
Confidence-March-2017.pdf, and employment confidence survey is available here: http://www.westpac.co.nz/assets/Business/Economic-Updates/2017/Bulletins-2017/
Q1-Employment-Confidence-March-2017.pdf
Roundup of local data released over the last week
Date Release
31 Mar Feb building permits
Mar ANZ business confidence
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to
ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown
risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.
Westpac weekly
year ahead. This relatively downbeat assessment for Auckland
is despite what has actually been some pretty solid economic
activity. Regional GDP figures for the year to March 2016 show that
Aucklands GDP rose by 6%. And even when you account for the
fact that the region has had the highest rate of population growth
in the country, it was still the second fastest growing region that
year. More recently, weve seen continued positive activity and solid
employment growth in the region, with the construction and tourism
sectors performing strongly.
Like many rapidly growing cities globally, Auckland has encountered
growing pains, including poor housing affordability and transport
woes, and such issues are likely weighing on residents views of the
regions prospects. Nevertheless, the regions strong economy, as
well as education and social opportunities are continuing to attract
people.
One very positive development for Auckland was the sharp increase
in dwelling consent issuance in February, including a strong rise
in multi-unit consent numbers. Housing market tightness is one
of the biggest challenges Auckland is wrestling with. But with the
Unitary Plan having now cleared legal hurdles, it appears developers
are coming back into the market, and we expect home building to
rise over the coming year. But for now, issuance in Auckland still
remains below whats needed to keep up with surging population
growth in the region, and housing market tightness is likely to
remain a challenge for some time yet.
Looking at the other major centres, confidence was up in both
Canterbury and Wellington. This follows declines last quarter that
were related to earthquake induced disruption and uncertainty.
In Wellington, population growth and a strong tourism season are
boosting demand. Together, these factors are supporting activity in
many parts of the services sector, and are encouraging increased
investment spending by businesses. However, the past few months
have seen concerns about rising rents and housing affordability.
Canterburys economy is continuing its transition though the
rebuild process. Although growth has slowed, activity in the region
remains at an elevated level. Recent months have seen the number
of commercial buildings completed rise, and increasing numbers
of businesses returning to the central city. On top of this, the
drivers of activity are gradually shifting away from construction and
towards areas like tourism and services. This has given the region
a sense of vibrancy, with workers reporting improved job prospects
and earnings.
Previous Actual Mkt f/c
2.1% 14.0% 5.0%
16.6 11.3
4
 Westpac weekly

Data previews

Aus Feb dwelling approvals Dwelling approvals

Apr 3 Last: 1.8%, WBC f/c: 1.0%
Mkt f/c: -1.5%, Range: -6.0% to 3.0% '000 '000
25 houses, priv. (lhs) 250
Dwelling approvals rose 1.8% in Jan retracing most of a units, priv. (lhs)
downwardly revised 2.5% fall in Dec. However, Jan data is 20 underlying
demand
200
notoriously unreliable due to the summer low season with the
detail showing weaker reads in components less susceptible 15 150
to seasonal volatility issues. Stepping back, the picture is still
of a marked slowdown since Aug last year. The main interest 10 100
is around the mix of weakness across high rise and non high
rise segments which will determine how much of the slowdown 5 50
impacts construction activity in 2017 vs 2018 and beyond.
Sources: ABS, Westpac Economics
0 0
The Feb update should provide a 'truer' read on conditions. The Jan-02 Jan-05 Jan-08 Jan-11 Jan-14 Jan-17
bulk of the high rise drop now looks to have passed but there
is still likely to be some residual weakness coming through. We
expect a 1% decline with risks looking a bit more evenly balanced
than late last year.

Aus Feb retail trade Monthly retail sales

Apr 3, Last: 0.4%, WBC f/c: 0.3%
Mkt f/c: 0.3%, Range: 0.1% to 0.7% AUDbn % chg
26 3.0
Qld
mthly % chg (rhs)
Jan retail sales grew by 0.4%, the lift following a soft end to 24
floods
fiscal
level (lhs)
2.5
2016 (essentially flat through Nov-Dec). The recent pattern has payments 2.0
$1.9bn
been driven by significant moves in 'household goods' retail 22
1.5
where the closure of the Masters Home Improvement chain
20 1.0
created a big drag on both prices and volumes late last year.
0.5
Consumer sentiment slipped back into 'cautiously pessimistic' 18
0.0
territory in Dec-Feb, the component detail showing a 16
deterioration in family finances and pointing to a lift in risk mth%ch (rhs) -0.5
aversion. Private sector business surveys have been more 14
Source: ABS; Westpac Economics
-1.0
upbeat, although strength remains concentrated in consumer Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
service sectors rather than retail. Overall we expect retail sales
to post another sluggish 0.3% gain in Feb.

Aus Feb trade balance, AUDbn Australias trade balance

Apr 4, Last: +1.3, WBC f/c: +2.8
AUDbn AUDbn
Mkt f/c: +1.7, Range: +0.5 to +3.4 35 4
G&S trade balance (rhs) Feb f/c: +$2.8bn
3
Australia's trade account has moved well into surplus as a 30 Exports (lhs)
spike in commodity prices boosts export earnings. Although, in Imports (lhs) 2
January the surplus narrowed from $3.5bn to $1.3bn, in part 25 1
due to a surprise $1.4bn spike in imports. 0
20
-1
In February, we expect a partial reversal to a $2.8bn surplus.
15 -2
Export earnings rise a forecast 3.0%, almost $1.0bn, largely -3
due to a rise in iron ore (prices) and a rebound in gold. 10
-4
For imports, we've factored in a 1.8% fall, -$550mn, on the 5
Sources: ABS, Westpac Economics
-5
judgement that part of the 4.7% jump in January was a pull- Jan-04 Jan-08 Jan-12 Jan-16
forward ahead of Lunar New Year disruptions.
NOTE: Since January 2016, there is additional uncertainty
around the import and trade forecast. The ABS no longer
publishes customs goods imports ahead of the trade release.
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to
ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown
risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.
5
 Westpac weekly

Data previews

Aus RBA policy decision RBA cash rate & market pricing
Apr 4, Last: 1.50%, WBC f/c: 1.50%
Mkt f/c: 1.50%, Range: 1.50% to 1.50% % %
12 12
RBA cash rate
The RBA is firmly on hold. The minutes of the March Board 10 standard variable mortage rate - own-occ. 10
meeting were less upbeat than previous assessments. standard variable mortage rate - investors
Upside risks from global growth and commodity prices were 8 8
downplayed, with the Bank again sounding cautious about
6 6
labour market conditions and household incomes.
However, concerns about a build- up of risks associated with 4 4
the housing market effectively rule out further cuts. Recently 2 2
announced 'macro prudential' measures should work to Sources: RBA; Bloomberg, Westpac Economics
cool conditions but will take time to act. More generally the 0 0
experience through 2015-16 when rate cuts quickly reignited Mar-05 Mar-07 Mar-09 Mar-11 Mar-13 Mar-15 Mar-17
housing markets will keep the Bank wary of moves down
the track. Our expectation remains for rates to remain on hold
throughout 2017 and 2018 (see p2 for a full discussion).

NZ Q1 Quarterly Survey of Business Opinion QSBO domestic trading activity and GDP
Apr 4, Last: 26, General business situation % %
50 3
The December quarter survey saw confidence ease a bit from 40
Septembers strong result. But overall, firms across sectors 30
2
reported solid results for the final quarter of 2016, and 20
expected further gains in activity in early 2017 consistent 1
10
with a continuation of moderate economic growth. 0 0
The surveys measures of costs and prices will be of particular -10
-1
interest. Last quarter firms pricing intentions rose to the -20 DTA next 3 months (lhs)
highest level in two years. While this is consistent with annual -30 Quarterly GDP growth (rhs) -2
inflation past its trough, pricing indicators remained mixed -40
Sources: NZIER, Statistics NZ
across sectors. In particular, retailers pricing intentions -50 -3
remained muted, potentially as the previous years gain in 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
the NZ dollar and soft global inflation kept a lid on imported
inflation. We expect this will remain a feature of the inflation
backdrop this year, limiting the rise in CPI inflation.

US March employment report Employed share of population rising

Apr 7, nonfarm payrolls Last: 235k, WBC 180k
% %
Apr 7, unemployment rate Last: 4.7%, WBC 4.7% 12 68

10 66
The labour market started 2017 on a particularly strong note,
64
with a 235k gain in nonfarm payrolls in February following 8
January's 238k rise (previously 227k). That is a material step 62
up in the pace of job creation versus 2016 a 187k average. 6
60
The household survey also points to a strong labour market: 4
the unemployment rate edging back down to 4.7%; and the 58
employment to population ratio trended higher to 60%. 2 Unemploment rate (lhs)
Participation rate (rhs) 56
Wages remain the one component that are not showing 0
Sources: Datastream, Westpac Economics Employment-population ratio (rhs)
54
outright strength. However, solid gains continue. 1970 1980 1990 2000 2010
Come March, another robust jobs gain is expected, albeit
back around 180k. With full employment reached, jobs growth
should slow through 2017 to a pace more consistent with
maintaining an unchanged unemployment rate circa 125k.

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to
ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown
risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.
6
 Westpac weekly

Key data &event risk for the week ahead

Market Westpac
Last median forecast Risk/Comment
Mon 3
Aus Mar AiG PMI 59.3 Feb survey was very positive.
Mar CoreLogic home value index 1.4% 1.4% Annual growth nudging 12% on this measure.
Mar MI inflation gauge %yr 2.1% Inflation pressures to remain modest.
Feb retail sales 0.4% 0.3% 0.3% Consumer sentiment softened in Q1, incomes under more pressure?
Feb dwelling approvals 1.8% -1.5% 1.0% Most of high rise pull-back looks to have passed.
Mar ANZ job ads -0.7% Feb dip followed surge in Jan, +3.9%.
Jpn Mar Nikkei manufacturing PMI (final) 52.6 Manufacturing in a cyclical upswing worldwide.
Q1 Tankan survey, large manufacturers 10 14 In line with global gains, Japanese firms seeing better demand.
Chn Mar Caixin China PMI 51.7 51.7 Official measure reported another robust month in Mar.
Eur Mar Markit manufacturing PMI (final) 56.2 56.2 Points to robust conditions for manufacturers.
Feb unemployment rate 9.6% 9.5% Slowly edging lower.
Ger Mar Markit manufacturing PMI (final) 58.3 58.3 In a very strong position given EUR and domestic conditions.
UK Mar Markit manufacturing PMI (final) 54.6 55.0 The lower pound has supported manufacturing and exporting.
US Mar Markit manufacturing PMI (final) 53.4 Continues to point to robust momentum.
Mar ISM manufacturing 57.7 57.0 Likely to remain strong for now.
Feb construction spending -1.0% 1.2% Investment set to remain subdued; partly owing to energy sector.
Fedspeak Dudley on household debt; Harker on Fintech; and Lacker.

Tue 4
Aus Feb trade balance, AUDbn 1.3 1.7 2.8 Surplus reduced from $3.5bn to $1.3bn in Jan - expect partial reversal.
RBA policy announcement 1.50% 1.50% 1.50% Firmly on hold as macro-prud. measures target housing risks (see p2).
RBA speak Governor Lowe gives remarks at the RBA Board dinner.
NZ Q1 QSBO business confidence 26 Confidence eased in Q4, still solid. Pricing intentions up from lows.
US Feb trade balance US$bn -48.5 -46.5 Jan's deficit a 5yr high
Feb durable goods orders (final) 1.7% Underlying growth still very subdued.
Fedspeak Fed's Tarullo speaks at Princeton University

Wed 5
Aus Mar AiG PSI 49.0 Sharp pull-back in Feb but has been a poor indicator in recent years.
RBA speak RBA's Heath at a Bloomberg Panel Participation.
NZ GlobalDairyTrade auction 1.7% Stabilised last auction. Futures point to another stable result.
Mar QVNZ house prices, %yr 13.5% Prices flattening out in Auckland, still rising in many other regions.
Mar ANZ commodity prices 0.4% This year's pullback in dairy prices expected to weigh on index.
Jpn Mar Nikkei Japan PMI Services 51.3 Pull back from recent highs posted in Dec 2016.
Eur Mar Markit services PMI 56.5 56.5 Improvement in domestic conditions aiding services...
Ger Mar Markit services PMI 55.6 55.6 ... across the continent.
UK Mar Markit services PMI 53.3 53.5 Has lost some ground. Growing concern about domestic demand.
US Mar ADP employment change 298k 180k Very strong in recent months; a correction due?
Mar Markit service PMI 52.9 Much weaker than the ISM variant...
Mar ISM non-manufacturing 57.6 57.0 ... which is pointing to strong growth.
Mar FOMC meeting minutes Further detail to glean on rates and balance sheet outlook.

Thu 6
Aus RBA speak RBA's Debelle Speaks on 'Recent Trends in Australian Capital Flows'.
Chn Mar Caixin China PMI services 52.6 NBS measure saw a robust gain in Mar.
Ind RBI repo rate announcement 6.25% 6.25 Surprised in previous meeting by holding rates due to higher inflation.
US Initial jobless claims 258k Historically low.
Fedspeak Fed's Williams Speaks on a Panel in Frankfurt.

Fri 7
Chn Mar foreign reserves $bn 3005 3015 Stable of late, but likely to see further declines through 2017.
Ger Feb industrial production 2.8% -0.3% A slight pullback expected after Jan surge.
Feb trade balance bn 14.9 17.4 Competitiveness strong thanks to EUR.
UK Mar Halifax house prices 0.1% Limited supply is helping to offset softer demand.
Feb trade balance bn -1966 -1900 Rising import prices, offsetting the improved export outlook.
Feb industrial production 0.4% 0.1 % Production firm supported by lower pound, but costs rising.
Feb construction output 0.4% -0.4% Investment likely to be impacted by Brexit in 2017 and beyond.
US Mar non-farm payrolls 235k 174k 180k Slower growth expected in Mar; but forecast still for strong growth.
Mar unemployment rate 4.7% 4.7% 4.7% At full employment.
Feb wholesale inventories 0.4% Fickle despite optimism over outlook.
Feb consumer credit $bn 8.79 11.00 Auto and student loans continue to drive headline.
Can Mar Ivey PMI 55.0 Firmer petroleum and chemical sales, softness in areas like transport.

Sat 8
Aus Westpac turns 200 Supporting Australia since 1817.
Chn Mar foreign direct investment %yr 9.2% Tentative date - 08/04 to 18/04.

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to
ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown
risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.
7
 Westpac weekly

Economic &financial forecasts

Interest rate forecasts
Latest (31 Mar) Jun 17 Sep 17 Dec 17 Mar 18 Jun 18 Sep 18 Dec 18
Cash 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50
90 Day Bill 1.79 1.80 1.80 1.80 1.80 1.80 1.80 1.80
3 Year Swap 2.08 2.20 2.35 2.50 2.40 2.30 2.50 2.80
10 Year Bond 2.70 2.95 3.00 3.05 3.15 3.25 3.40 3.40
10 Year Spread to US (bps) 29 30 25 20 15 15 10 10
International

Fed Funds 0.875 1.125 1.125 1.375 1.625 1.625 1.875 1.875
US 10 Year Bond 2.41 2.65 2.75 2.85 3.00 3.10 3.30 3.30
US Fed balance sheet USDtrn 4.52 4.52 4.52 4.52 4.52 4.52 4.52 4.52
ECB Deposit Rate -0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40
New Zealand

Cash 1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.75

90 day bill 2.01 2.00 2.00 2.00 2.00 2.00 2.00 2.10
2 year swap 2.32 2.50 2.50 2.50 2.50 2.60 2.70 2.80
10 Year Bond 3.19 3.45 3.50 3.60 3.65 3.75 4.00 4.10
10 Year spread to US 78 80 75 75 65 65 70 80

Exchange rate forecasts

Latest (31 Mar) Jun 17 Sep 17 Dec 17 Mar 18 Jun 18 Sep 18 Dec 18
AUD/USD 0.7644 0.76 0.75 0.74 0.72 0.70 0.68 0.66
NZD/USD 0.6985 0.69 0.68 0.67 0.66 0.64 0.63 0.62
USD/JPY 112.11 118 118 120 122 124 126 128
EUR/USD 1.0675 1.05 1.03 1.01 1.00 0.99 0.98 0.96
AUD/NZD 1.0942 1.10 1.10 1.10 1.09 1.09 1.08 1.06

Australian economic growth forecasts

2016 2017 Calendar years
Q2 Q3 Q4 Q1f Q2f Q3f Q4f 2015 2016 2017f 2018f
GDP % qtr / yr avg 0.8 0.5 1.1 0.6 0.8 0.8 0.7 2.4 2.5 2.6 2.8
% yr 3.1 1.9 2.4 1.9 2.0 3.4 3.0 2.5 2.4 3.0 2.5
Unemployment rate % 5.7 5.7 5.7 5.7 5.6 5.6 5.6 5.8 5.5 5.5 5.4
CPI % qtr 0.4 0.7 0.5 0.6 0.3 0.7 0.3
% yr 1.0 1.3 1.5 2.2 2.2 2.1 1.9 1.7 1.5 1.9 1.9
CPI underlying % qtr 0.5 0.4 0.4 0.5 0.5 0.3 0.4
% yr 1.6 1.5 1.6 1.9 1.9 1.8 1.7 2.0 1.6 1.7 2.1

New Zealand economic growth forecasts

2016 2017 Calendar years
Q2 Q3 Q4 Q1f Q2f Q3f Q4f 2015 2016 2017f 2018f
GDP % qtr 0.8 0.8 0.4 0.9 0.9 1.1 0.7
Annual avg change 2.7 2.9 3.1 3.1 3.0 2.9 3.2 2.5 3.1 3.2 3.4
Unemployment rate % 5.0 4.9 5.2 4.7 4.6 4.4 4.4 4.9 5.2 4.4 4.2
CPI % qtr 0.4 0.3 0.4 0.7 0.2 0.4 0.3
Annual change 0.4 0.4 1.3 1.8 1.7 1.7 1.6 0.1 1.3 1.6 2.1

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to
ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown
risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.
8
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Copyright 2017 Westpac Banking Corporation

Things you should know.

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