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Speaker 1: And with us right now we have Paul Blocks some

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Speaker 1: HSBC's chief economist. Hello, Paul good A, Right, So where

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Speaker 1: are we at with what you think the impact of

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Speaker 1: the Iran war will have, what the impact will be

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Speaker 1: on the Australian and the New Zealand economies.

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Speaker 2: Well, I think it's going to quite clearly drive inflation

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Speaker 2: to be higher and it's going to weaken growth at

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Speaker 2: the same time. This is not a good story, of course,

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Speaker 2: but it really isn't a good story. I mean, it's

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Speaker 2: a constraint on the supply of things that we need

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Speaker 2: to grow economy.

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Speaker 3: Oil, gas, fertilizer.

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Speaker 2: There's a whole collection of commodities that come out of

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Speaker 2: the Middle East, and of course the price of them's

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Speaker 2: gone up, oil most pertinently, most clearly, and petrol prices

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Speaker 2: are up sharply, diesel prices are up sharply. On the

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Speaker 2: back of it, that will slow down growth in the

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Speaker 2: economy because it's a key thing that we need, but

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Speaker 2: at the same time it'll lift inflation. I think the

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Speaker 2: tricky question is going to be for central banks, for

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Speaker 2: the RBA and the rbn Z in terms.

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Speaker 3: Of exactly how they respond to all of.

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Speaker 2: This, because it's obviously pretty challenging when you've got in

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Speaker 2: fla that goes up and growth that's likely to slow down.

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Speaker 1: Okay, do you still think I mean, I see ASB

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Speaker 1: put out a note yesterday saying we're still going to

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Speaker 1: get I think it's about one point three percent growth

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Speaker 1: across the year. Can we still count on some growth

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Speaker 1: no recession?

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Speaker 3: Well?

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Speaker 2: So, I think the challenge here is that there's a

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Speaker 2: huge uncertainty. I mean, the big uncertainty is we don't

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Speaker 2: know how long the events in the Middle East are

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Speaker 2: going to continue, how long the straight of for Mars

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Speaker 2: is going to remain closed, and how much that's going

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Speaker 2: to continue to put upward pressure on oil prices. In particular,

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Speaker 2: the longer it goes on, the more likely it is

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Speaker 2: to drive oil price is higher. The more likely it

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Speaker 2: is it creates even more weakness in growth, and we

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Speaker 2: see growth slow down even further. Our working assumption is

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Speaker 2: that if it opens sometime soon in the next little while,

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Speaker 2: the oil price comes down a bit and we don't

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Speaker 2: end up with an outright contraction in New Zealand, and

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Speaker 2: we end up with a short sort of short lived

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Speaker 2: contraction in Australia. Australia's in a little bit of a

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Speaker 2: different spot right now because they've already gotten FLA that's

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Speaker 2: too high, and we've already had the RBA lifting interest

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Speaker 2: rates twice.

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Speaker 3: So that's our working assumption.

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Speaker 2: But I think the longer this goes on, and we're

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Speaker 2: talking about you know, if it goes on for weeks

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Speaker 2: in two months, then the more likely it is to

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Speaker 2: push the economy into an an outright contraction and where

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Speaker 2: you know that's going to be the challenges to say,

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Speaker 2: not an easy time for policymakers either.

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Speaker 3: Because what do they focus on?

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Speaker 2: Do they focus on the inflation that's going up or

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Speaker 2: do they focus on the growth that's slowing down? And

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Speaker 2: I think for the RB and Z for the moment,

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Speaker 2: I think they've got room to sit still. Next week,

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Speaker 2: I think they're going to sit still and sort of

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Speaker 2: watch and wait as the world and observe what's going

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Speaker 2: on and work out where they land by the next

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Speaker 2: By the following meeting for RBA, they haven't had that

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Speaker 2: rigal room, so they had to lift rights last month anyway,

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Speaker 2: earlier this month anyway.

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Speaker 1: How often are you revising what you guys think is happening?

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Speaker 2: Well, we try not to revise too frequently because it

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Speaker 2: does become difficult. But I think what we've done this

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Speaker 2: time around, which I think is quite useful, is set

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Speaker 2: out a base case as to where we think things

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Speaker 2: are based on reasonable assumptions that we put together about

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Speaker 2: last week basically, and then set out a scenario. And

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Speaker 2: the scenario sets out what would happen if things turn

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Speaker 2: out to be you know, oil prices stay higher or

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Speaker 2: go higher and stay higher for longer. And in that scenario,

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Speaker 2: obviously conditions are worse. The economy tips into a larger contraction,

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Speaker 2: and inflation stays higher for longer. And so I think

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Speaker 2: the most the way we can think about that is

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Speaker 2: it's useful because it gives us a sense of, well,

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Speaker 2: this is what we think will happen, but there are

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Speaker 2: other things.

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Speaker 3: But if the circumstances are different, we can.

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Speaker 2: Think about it through that lens of a scenario.

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Speaker 1: I mean, you guys working, It seems to me from

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Speaker 1: the side of the ditch that New Zealand is in

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Speaker 1: a better position than Australia, not only because we are

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Speaker 1: slightly better in terms of our inflation, but also because

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Speaker 1: our oil supply seems to be a little bit more

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Speaker 1: assured than Australia. Would you say that's the case?

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Speaker 3: I think so.

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Speaker 2: I think New Zealand is, and I think I was

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Speaker 2: actually in New Zealand last week talking to clients and

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Speaker 2: I was telling them this, and I think, you know,

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Speaker 2: it's hard for Kiwis to think, oh, really, we're in

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Speaker 2: a better spot than Australia, but I think the reality

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Speaker 2: is because inflation is already down more and because you've

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Speaker 2: had a number of years now of quite weak growth

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Speaker 2: in New Zealand, you're in a slightly better starting point

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Speaker 2: for the nature for the for the nature of the

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Speaker 2: shock that's just arriving. So it's another pick up in inflation.

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Speaker 2: And so inflation being lower to start with means there's

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Speaker 2: a bit more spare capacity in the economy, a little

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Speaker 2: bit more room for the RB and Z to sit

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Speaker 2: still and sort of observe, whereas in Australia, I mean,

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Speaker 2: inflation is already too high. It's three point seven percent

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Speaker 2: already and we're just about to get another step.

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Speaker 3: Up in inflation.

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Speaker 2: So I think this has meant the RBA has just

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Speaker 2: not been as well placed to given the nature of

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Speaker 2: the shop that's arrived.

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Speaker 1: Yeah, Paul listen. Good to talk to you. As always,

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Speaker 1: we'll talk to you again soon. Look after yourself. Let's

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Speaker 1: pull block some hspec's chief economist for more or from

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Speaker 1: Heather Duplessy Allen Drive.

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Speaker 2: Listen live to News Talks at B from four pm weekdays,

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