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Speaker 1: Paul Blocks of ahspc's chief economist, is with us evening.

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Speaker 1: Paul good A, what are you picking for our unemployment

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Speaker 1: number tomorrow?

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Speaker 2: Well, our forecast is a little bit more optimistic than

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Speaker 2: the market, where forecasting that it might track sideways and

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Speaker 2: sort of stay roughly the same level that it was

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Speaker 2: at the last print, so just over five percent five

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Speaker 2: point one. We've got in mind that you might see

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Speaker 2: a little bit of positive employment growth and we'll just

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Speaker 2: see what the print manages to deliver.

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Speaker 1: Why why are you more positive than others? Do you

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Speaker 1: think there's laborhooding going on? Or are you accounting for

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Speaker 1: the fact that a lot of people are just when

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Speaker 1: they lose their jobs here heading off to Australia.

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Speaker 2: I think that actually the economy is in a modest

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Speaker 2: up swing. We saw it in the first quarter GDP print,

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Speaker 2: we saw it in the fourth quarter print from last year.

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Speaker 2: I think there are some forces at work that are

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Speaker 2: supporting the economy. You know, dairy prices have risen to

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Speaker 2: very high levels. You've got interest rates that have come down.

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Speaker 2: It's not coming through all of the act the time

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Speaker 2: activity indicators as yet, but we're of the view that

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Speaker 2: it will and the labor market tends to lag everything.

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Speaker 2: I mean, that's the thing to really keep in mind

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Speaker 2: that the labor market's one of the last things to

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Speaker 2: actually see any of that sort of momentum. So you

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Speaker 2: see an improvement and a sentiment to a degree, and

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Speaker 2: then it feeds through to a bit more activity and

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Speaker 2: then the hiring starts. So we're not looking for a

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Speaker 2: strong result, but we're looking for some sense that the

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Speaker 2: labor market's starting to find some stability.

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Speaker 1: There is a bit of chat, renewed chat at the

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Speaker 1: moment about how the economy is faring, and people are

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Speaker 1: getting pretty grouchy with the government because we're eighteen months

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Speaker 1: into our electoral term and we thought things would be

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Speaker 1: a little bit better. How do you see things kind

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Speaker 1: of playing out this time next year when we're at

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Speaker 1: election time.

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Speaker 2: As I said, and we've talked about this before on

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Speaker 2: this program, that you know, we sit and look at

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Speaker 2: the big picture factors and say, actually, there are some

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Speaker 2: things out there, some big forces at work that should

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Speaker 2: be lifting the New Zealand economy. And the primary ones

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Speaker 2: are that commodity prices are high levels, dairy prices or

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Speaker 2: a higher levels. That's a really positive terms of trade

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Speaker 2: shock that's been delivered to New Zealand that you've got

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Speaker 2: a trade surplus at the moment. The agricultural sector is

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Speaker 2: doing quite well. Is really the short of it. That

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Speaker 2: tends to eventually feed through to activity in the cities

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Speaker 2: as well in terms of a bit more spending. It

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Speaker 2: just takes a bit of time for it to feed through.

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Speaker 2: And then the other big force that's going to be

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Speaker 2: helpful is that interest rates have already come down by

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Speaker 2: two hundred and twenty five basis points, and I think

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Speaker 2: as people start to realize that there's not that perhaps

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Speaker 2: not that much more easy to come through, they'll start

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Speaker 2: to roll off fixed their five year fixed rate mortgages

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Speaker 2: and then start to choose to do a bit more spending.

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Speaker 2: And so we've got both those forces sort of in

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Speaker 2: mind when we're thinking that growth is actually going to

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Speaker 2: have a bit of positive momentum running into the second

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Speaker 2: half and into next year. Yeah.

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Speaker 1: So at the moment, obviously the consumers are not feeling great.

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Speaker 1: There are worries about inflation expectations. You know, the expectation

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Speaker 1: is it will take up again. Do you think that

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Speaker 1: will just dissipate as we start to feel a bit

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Speaker 1: better about things.

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Speaker 2: I think the primary driver of the lift in inflation

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Speaker 2: has been things that are sort of short term. Fact.

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Speaker 2: Food prices have risen a bit, and I think you've

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Speaker 2: seen that come through as you're describing into inflation expectation surveys.

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Speaker 2: But I think the other force at work on the

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Speaker 2: inflation front is going to be a trade diversion. So

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Speaker 2: you know, the global trade developments are going to lead

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Speaker 2: we think at least to China leading needing to export

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Speaker 2: a lot more of its manufactured goods to other markets

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Speaker 2: that aren't the US. And one of the one of

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Speaker 2: the features is going to be that we're going to

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Speaker 2: see more manufactured goods showing up in Australia and New Zealand.

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Speaker 2: And we think that's going to be something that puts

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Speaker 2: downward pressure on inflation in the coming quarters, so over

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Speaker 2: the coming period and so that should sort of start

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Speaker 2: to dissipate some of the inflation pressures a bit and

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Speaker 2: give people a bit more spending power.

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Speaker 1: So do you think come this time next year we

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Speaker 1: are feeling better off, like materially better off enough to

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Speaker 1: want to re elect the slot.

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Speaker 2: We should be The New Zealand economy should be in

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Speaker 2: an upswing. That's what we think, and I think you know,

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Speaker 2: the other way to square it away would be if

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Speaker 2: you don't get quite as much of an upswing and

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Speaker 2: the inflation numbers do start to come down, well, then

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Speaker 2: the ARBENZ may very well have more scope to lower

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Speaker 2: interest rates for them. I mean, we've only got one

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Speaker 2: more cut in for the RBNZ in our central case,

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Speaker 2: but if it turns out the economy is weaker, they've

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Speaker 2: got more scope to lower to lower things, to lower rates.

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Speaker 2: I think you know that's going to be Those are

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Speaker 2: going to be the two forces at least we've got

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Speaker 2: that we've got in mind, will lift the economy running

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Speaker 2: into next year.

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Speaker 1: Yeah, were you surprised to see the fifteen percent tariff

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Speaker 1: slept on New Zealand.

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Speaker 2: I think we were all watching and waiting to see

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Speaker 2: what the Trump administration was going to deliver. It's very

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Speaker 2: difficult to pick what the numbers are going to be

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Speaker 2: out of the administration, but I guess it is quite

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Speaker 2: interesting that fifteen percent. New Zealand got a fifteen percent,

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Speaker 2: Australia ended up with a ten percent, and so that's

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Speaker 2: that's been an interesting feature. But it was very difficult

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Speaker 2: to predict what those numbers were going to be. Like,

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Speaker 2: I mean, the key feature we're pointing out is both

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Speaker 2: countries have actually got you know, comparatively low tariffs went

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Speaker 2: into the US, and both countries have a fairly limited

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Speaker 2: exposure in terms of their direct sales into the US

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Speaker 2: market anyway. So we are countries that are mostly tied

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Speaker 2: to the growth story in Asia, and what happens in

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Speaker 2: China matters more than you know, what happens in the

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Speaker 2: US in terms of the growth story for Australia and

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Speaker 2: for New Zealand, and China's got more scope to pull

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Speaker 2: leavers and they are delivering more incremental support for their growth.

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Speaker 2: So that should mean that, you know, I think the

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Speaker 2: biggest effect on Australia and New Zealand is actually going

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Speaker 2: to be the disinflationary impulse, the inflation coming down because

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Speaker 2: we get lots of cheap manufactured goods showing up in

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Speaker 2: our markets over the coming period.

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Speaker 1: Not half bad, hey, Paul, as always really appreciate talking

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Speaker 1: to you. Thank you, Paul Bloxham, Agspecies chief Economist. For

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Speaker 1: more from Hither Duplessy Allen Drive, listen live to news talks.

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