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Speaker 1: AGSPC chief economist Paul Bloxham is back with us. Hello, Paul.

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Speaker 1: Good eight Now, Paul, you've been telling me for months

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Speaker 1: that you think the New Zealand economy is doing better

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Speaker 1: than we think. You got the numbers now to back

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Speaker 1: you up.

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Speaker 2: Yeah, Well, we got the GDP figures and they were

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Speaker 2: fairly strong. I think, you know, aligned with the sort

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Speaker 2: of view we've had for a little while that New

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Speaker 2: Zealand would be in an economic upswing this year, and

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Speaker 2: it would be a reasonable reasonable one. We've got GDP

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Speaker 2: running at point eight in the quarter. That's actually a

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Speaker 2: pretty decent number. It was twice the pace that the

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Speaker 2: Central Bank had been forecasting just in their last set

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Speaker 2: of forecasts. And we think it's underpinned by things that

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Speaker 2: will continue to lift growth through the year. The two

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Speaker 2: big ones that interest rates have already come down a

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Speaker 2: long way two hundred and twenty five basis points of

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Speaker 2: easing so far, and that's going to start to flow through.

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Speaker 2: Its effect takes time, but it'll flow through. And the

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Speaker 2: other big one, of course, is that dairy prices are

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Speaker 2: high and you've got a positive lift in exports going on.

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Speaker 2: That's driving incomes in the agricultural sector, and we think

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Speaker 2: that tends to flow over through to the cities as well.

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Speaker 2: Makes a little bit of time. So those two big

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Speaker 2: factors we think are driving New Zealand into an economic

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Speaker 2: upswing this year.

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Speaker 1: Do you think the beating of expectations that happened in

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Speaker 1: the first quarter carries on throughout the year?

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Speaker 2: We do think that where our forecast is at the

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Speaker 2: top edge of the consensus. So if you listed off

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Speaker 2: all the economists right now and looked at what their

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Speaker 2: full casts are for growth for New Zealand this year,

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Speaker 2: we would be at the top of that list. And

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Speaker 2: that's because we think that actually there's going to be

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Speaker 2: a bit more momentum than others do. So yes, I

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Speaker 2: think in principle we think that quite a bit of

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Speaker 2: the momentum that started off in the first quarter continues

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Speaker 2: into the rest of the year.

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Speaker 1: So the thing that's given people a bit of the

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Speaker 1: wobbles is the readings we got in May, right for

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Speaker 1: the PMI and the PSIE. You're not too worried about that.

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Speaker 2: I think you've got to be careful to overly interpret

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Speaker 2: any one month's indicator. And you've have got this set

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Speaker 2: of indicators for may that have weakened, but keep in

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Speaker 2: mind what's going on globally and then try to have

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Speaker 2: a think about why sort of the global shops that

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Speaker 2: are going on in trade policy should really fundamentally feed

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Speaker 2: through to New Zealand. And I think it's a stretch

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Speaker 2: to believe that. You know, it's more likely to be

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Speaker 2: sentiment than it is likely to be a genuine sort

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Speaker 2: of slow down in the growth story, given the momentum

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Speaker 2: we think that's there from as I say, interest rates

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Speaker 2: coming down and the particularly strong rise in dairy exports.

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Speaker 2: So while we're aware of it and we're watching it

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Speaker 2: and that it may prove to be that actually things

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Speaker 2: have weakened a bit, we're not prepared to jump quite

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Speaker 2: as strongly in that direction just based on one month's reading.

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Speaker 1: Now now you've done a comparison between how our economy

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Speaker 1: is tracking in Australia and to your mind, we're doing

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Speaker 1: a lot better than Australia. What's going wrong with them?

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Speaker 2: Well, the first thing is that part of this story

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Speaker 2: is purely cyclical. You know, Australia didn't have as big

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Speaker 2: a slowdown last year, and so we don't think it's

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Speaker 2: going to get as big a upswing this year. Inflation's

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Speaker 2: coming down more slowly. New Zealand had a much deeper

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Speaker 2: downturn last year, and so interest rates have come down

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Speaker 2: a lot more quickly, and of course you going to

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Speaker 2: get as a bat on the back of that, we

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Speaker 2: think a cyclical upswing. Both economies have some structural challenges

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Speaker 2: and the primary issue there, of course is that productivity

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Speaker 2: is weak, and that productivity story is constraining growth in

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Speaker 2: the economy. It's much more prominent in Australia, though. I

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Speaker 2: think in Australia we've got some really quite dismal productivity outcomes.

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Speaker 2: So on the last print we got output per hour work,

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Speaker 2: which is exactly as it sounds. It's how much output,

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Speaker 2: how much GDP you get for how many hours you

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Speaker 2: put into the economy was falling by one percent, if

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Speaker 2: not by one percent over the past year. This is

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Speaker 2: not a new story. It's been going on for a

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Speaker 2: while now. But productivity is really quite a big challenge here.

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Speaker 2: I know it is in New Zealand too, but it's

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Speaker 2: an even bigger challenge in Australia, and that is presenting

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Speaker 2: a pretty decent headwind to the pace at which the

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Speaker 2: Australian economy can grow.

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Speaker 1: Why why is it a bigger problem there?

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Speaker 2: I think we just haven't done very much reform in

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Speaker 2: recent years, and that's one of the factors. I mean,

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Speaker 2: you could say the same about parts of the New

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Speaker 2: Zealand story too, and you makers need to really focus

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Speaker 2: on on the reform agenda. I think the other thing

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Speaker 2: is that we've seen a lot of growth in the

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Speaker 2: Australian economy over the past couple of years has been

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Speaker 2: driven by public spending. It's been public demand. In fact,

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Speaker 2: you know, eighty percent of the growth in the Australian

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Speaker 2: economy over the past two years has come from public demand,

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Speaker 2: or three quarters of the job creation has been public

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Speaker 2: demand as well. Public demand funded, and so those jobs

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Speaker 2: tend to have lower levels of productivity on average. We're

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Speaker 2: talking about things that are motionally related to the care economy,

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Speaker 2: aged care, disability, the disability insurance scheme, the health, the

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Speaker 2: health side, and these things tend to have lower productivity.

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Speaker 2: I think if you looked at the comparable numbers for

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Speaker 2: New Zealand, although public demand's been solid, it hasn't been

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Speaker 2: nearly as strong as you've seen in Australia. Yeah.

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Speaker 1: Interesting that's fascinating. A good news there. Thank you very much, Paul,

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Speaker 1: appreciate it. Paul Bloxham, HSBC's chief economist.

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