Australia will make almost no progress this year with GDP growth once again coming in closer to 2.0% than 3.0%. With growth in New Zealand set to accelerate from around 3.0% to 3.5%, the divergence in the economic fortunes of the two neighbours will become even starker. That said, both countries will share the same characteristics of weak wage growth and low underlying inflation. In Australia, this may lead to interest rates being cut from 1.5% to 1.0%, while in New Zealand it will prevent rates from being raised from 1.75%. Neither country will follow the US Fed by raising rates until at least 2019. This divergence with the US means there is scope for the Australian and New Zealand dollars to weaken, perhaps to US$0.65 and US$0.60 respectively.
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