Revival won't last long

The recent resurgence in activity in both Australia and New Zealand is not the start of a sustained period of strong GDP growth. While the near-term outlook has improved, GDP growth in both economies won’t accelerate in 2016 from about 2.3% in 2015. The previous weakening in the exchange rates will boost net exports. But this will be offset by a further weakening in investment linked to the fall in profits triggered by lower commodity prices. Both economies will also endure a period of unusually low underlying inflation. This will be enough to prompt the Reserve Banks of Australia and New Zealand to cut interest rates by another 0.5% each, to 1.5% and 2.0% respectively. As such, the Australian and New Zealand dollars have yet to find a floor.