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Speaker 1: Blocks of agspec's chief economist is with us.

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Speaker 2: Hey, Paul good A, are you even.

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Speaker 1: More confused this week than last about where the rates

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Speaker 1: are going in New Zealand?

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Speaker 3: No, I don't think so.

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Speaker 2: I mean, I think I thought you were going to

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Speaker 2: ask me about am I confused about the global picture?

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Speaker 2: There's so much going on every day, it's shifting and

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Speaker 2: changing and so on. But no, I think. I mean,

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Speaker 2: I think the RBNZ is getting near the end of

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Speaker 2: the using phase, and that's the view we've had for

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Speaker 2: a while. I mean, we've got one more cut penciled

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Speaker 2: into our central case. But I think that now the

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Speaker 2: question is do we get that or not? Because no,

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Speaker 2: the New Zealand economy is in an upswing. The partial

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Speaker 2: indicators are showing an up swing. I would point out

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Speaker 2: that we HSBC have been the top of consensus in

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Speaker 2: terms of the forecast. We've had the strongest forecasts of

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Speaker 2: all of the economists for New Zealand for this year,

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Speaker 2: and we've had that all year long so far. And

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Speaker 2: I think I'm sticking by that story that I think

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Speaker 2: New Zealand's going to be in a good, strong upswing.

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Speaker 2: And I think there are two big things going on.

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Speaker 2: And we've said this again all year long. One, interest

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Speaker 2: rates have come down a long way and they are

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Speaker 2: going to start to get some grip and lift the economy.

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Speaker 3: And I think you've seen some signs of that.

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Speaker 2: And two, you've seen this very strong rise in dairy

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Speaker 2: prices that is boosting incomes in the agricultural sector, and

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Speaker 2: we know that can be a pretty big force for

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Speaker 2: New Zealand. Once that gets going, it can really start

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Speaker 2: to see more capex and more spending and more money

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Speaker 2: coming into the cities as well. And so we think

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Speaker 2: those two forces are turning the New Zealand economy around.

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Speaker 2: We've got growth of two percent this year and as

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Speaker 2: I say, the highest growth forecasts of any of the

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Speaker 2: sort of forecasters that.

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Speaker 1: People will be so thrilled to hear that because it's

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Speaker 1: been such a tough grind, as you know, for the

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Speaker 1: last few years in New Zealand. Tell me, then, what

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Speaker 1: do you think is going on globally? I mean, where

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Speaker 1: are we at now?

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Speaker 2: Well, I think we're still yet to see there's still

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Speaker 2: some bad news yet to come. I think that's the

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Speaker 2: way I would see it. I sort of think about

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Speaker 2: it as a three stage process. We've had a huge

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Speaker 2: rise in uncertainty. All of this stuff going on with

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Speaker 2: trade policy has increased uncertainty to higher levels. And uncertainty

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Speaker 2: is not good for growth. It makes businesses, you know, cautious,

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Speaker 2: and it means they don't know where where to invest.

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Speaker 3: And so on.

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Speaker 2: We haven't seen the full effect of that yet in

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Speaker 2: the economic indicators, and that's partly because.

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Speaker 3: We've had massive front loading.

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Speaker 2: You know, there's been a whole bunch of pull forward

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Speaker 2: of activity to try and get ahead of the arrival

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Speaker 2: of the tariffs that are going to arrive, and so

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Speaker 2: that's increased imports and increased exports and increased consumer spending.

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Speaker 2: It's boosted the activity indicators. But it's going to roll over.

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Speaker 2: And when when that rollo, when that front loading is finished,

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Speaker 2: it's going to weaken growth. And I think we're still

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Speaker 2: going to be in quite an uncertain global environment.

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Speaker 1: You know.

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Speaker 2: My sense is policy is shifting and changing so quickly

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Speaker 2: that uncertainty will still be there. So I still think

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Speaker 2: that's quite a bit of bad news for the global

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Speaker 2: macroeconomy yet to feed through to the actual numbers.

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Speaker 1: Now, Paul, the thing is, we've had some bad news

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Speaker 1: in Auckland today. Obviously everybody's houses has gone backwards, and

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Speaker 1: you know, the wealth effect would suggest that as a result,

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Speaker 1: the old wallets are going to snapshot. How long does

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Speaker 1: it take for us to get over a disappointment like

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Speaker 1: that before we start spending again.

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Speaker 3: Well, my understanding is this is a reflection of house

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Speaker 3: price declines that have already happened. Yes, and actually the

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Speaker 3: housing market is already starting to stabilize because interest rates

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Speaker 3: are coming down. And actually we should think about this

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Speaker 3: as a reassessment of the value of houses that then

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Speaker 3: affects the rates that people pay. Actually, in principle that

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Speaker 3: should mean household's got a bit more income to spend

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Speaker 3: because they haven't to spend as much on rates. I

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Speaker 3: mean I So it's not clear to me that the

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Speaker 3: sort of perceptions effect of oh my house price is

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Speaker 3: lower is going to be larger than the actual effect

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Speaker 3: of incomes they're going to have. Households are going to

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Speaker 3: get a bit of a boost to their incomes, because

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Speaker 3: this is how the rates are calculated for housing.

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Speaker 1: Even nobody gets a boost to the income, They just

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Speaker 1: get a smaller rate increase. Potentially, that's right.

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Speaker 2: Well, so relative to the expectation that they were going

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Speaker 2: to get a larger one. They're not going to get

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Speaker 2: a they're going to get a smaller one. So in principle,

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Speaker 2: in principle, you've got you've got a little bit more

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Speaker 2: spending power than you thought you'd have.

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Speaker 1: Well, so here's hoping Paul listen, appreciate it as always,

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Speaker 1: Paul Bloxhom Agspecies, chief economist.

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