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Speaker 1: Paul Bloxham, AGSBC Chief Economists with US right now, Hey, Paul,

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Speaker 1: good aim, So tomorrow twenty five basis point cut. That's it,

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Speaker 1: isn't it?

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Speaker 2: I think so.

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Speaker 3: I think they're going to cut by twenty five basis

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Speaker 3: points tomorrow. I think the key thing to watch out

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Speaker 3: for is what they have to say about it and

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Speaker 3: where they're at. And I think they're going to still

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Speaker 3: they're going to cut by twenty five and I think

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Speaker 3: they're going to say that they will still leave the

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Speaker 3: door open to the possibility that they might have to

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Speaker 3: cut a little bit further yet. So I think it's

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Speaker 3: still the case that they're focused on the weak growth

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Speaker 3: story rather than worried about.

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Speaker 2: Inflation pressures at this point.

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Speaker 3: And so, you know, leaving the door open trying to

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Speaker 3: get the economy to get going, particularly ahead of you know,

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Speaker 3: they've got a three month gap now until the next

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Speaker 3: meeting until February, and of course the new governor that's

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Speaker 3: arriving at the RBNST as well, So trying to get

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Speaker 3: the economy to turn around ahead of that.

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Speaker 2: I think that's what the aim will be.

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Speaker 1: What are you expecting for the economy next year, Paul,

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Speaker 1: Because I know that we're I mean, I saw your

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Speaker 1: last prediction. Correct me if I'm wrong about two and

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Speaker 1: a half half percent till thereabouts, and the other banks

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Speaker 1: are calling around about that as well, up to three percent.

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Speaker 1: But the numbers that we're seeing in the data that

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Speaker 1: we're seeing just makes you feel a bit nervous, doesn't it.

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Speaker 2: Yeah, it does make me nervous.

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Speaker 3: We do have a number which is a bit over

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Speaker 3: two percent in terms of growth running into next twenty

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Speaker 3: twenty six, and I think you know that the challenge

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Speaker 3: has been that it has taken longer for growth to

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Speaker 3: pick up than we expected.

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Speaker 2: We expected this year might be a bit better than

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Speaker 2: it was in the end, but it has been weaker.

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Speaker 3: But I think the two key mechanisms are still there

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Speaker 3: that should get things going. The first one is interest

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Speaker 3: rates have come down a long way, and of course

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Speaker 3: they've come down even further and as I say, likely

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Speaker 3: to come down a bit further tomorrow again, and that

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Speaker 3: should start to feed through to a bit more consumer

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Speaker 3: spending and some support for the housing market as well.

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Speaker 3: And the other one is that dairy and meat prices

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Speaker 3: have been very high, so the agricultural sector has done

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Speaker 3: very well and those payouts are starting to arrive and

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Speaker 3: that income is starting to slosh into the economy. And

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Speaker 3: although it's mostly in the South Island, I think some

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Speaker 3: of it will start to feed through to the broader

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Speaker 3: economy as we run through next year as well.

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Speaker 2: I don't think this is a strong growth profile.

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Speaker 3: But this is a recovery after too what will turn

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Speaker 3: out to have been two quite.

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Speaker 2: Weak years in terms of New Zealand's economic performance.

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Speaker 3: So two years of economic weakness followed by a modest

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Speaker 3: recovery is what we've got factored in to the story.

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Speaker 1: Have you factored in the possibility that everything that's freeing

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Speaker 1: up on account of the official cash rate coming down

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Speaker 1: is simply being hoovered up by increasing rates, so actually

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Speaker 1: you don't end up with that much disposable cash.

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Speaker 2: I think this is still feeding through.

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Speaker 3: I think the main thing that we've seen that's been

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Speaker 3: quite slow is people fixing shifting off their fixed rate

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Speaker 3: mortgages and rolling over those fixed rate mortgages to lower rates,

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Speaker 3: and that's been one of the things that has slowed

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Speaker 3: things down. I think, you know, if you sort of

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Speaker 3: look back and think about what else has held up

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Speaker 3: the recovery. I mean, I think it's taken you know,

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Speaker 3: the fact that you had such a big housing cycle,

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Speaker 3: house price cycle, you know, a forty five percent rise

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Speaker 3: in house prices through the pandemic and then sort of

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Speaker 3: an almost twenty percent to client in house prices, so

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Speaker 3: a lot more I think people you know had bought

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Speaker 3: in and are still facing house prices that are lower

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Speaker 3: than when they purchased them. And I think that's probably

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Speaker 3: been something that's that's been weighing on New Zealand more

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Speaker 3: than we anticipated earlier in the year.

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Speaker 2: So that's that's one of the features.

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Speaker 3: And then and then as a consequence of the weaker economy,

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Speaker 3: of course, you've seen this outward migration story, which is

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Speaker 3: weighed on population growth.

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Speaker 2: So there's quite a bit that has to turn around.

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Speaker 3: But I think the big mechanisms for getting it to

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Speaker 3: turn around are there. They're working, you know, with lower

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Speaker 3: interest rates and as I say, hi, high commodity price.

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Speaker 1: Yeah, I mean, I feel like I should clarify what

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Speaker 1: I mean by rates was council rates, because obviously we

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Speaker 1: could talk about any kind of rates, but I feel

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Speaker 1: like that sucked up a heap of our disposable income.

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Speaker 1: But I mean, you'll bang on. You know, the wealth

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Speaker 1: effect will be part of it. So when you take

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Speaker 1: everything into account, are you still sticking with your projection

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Speaker 1: of two and a half.

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Speaker 3: So I have a bit over two percent running into

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Speaker 3: next year. And as I say, I think the main

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Speaker 3: way characterized it is after having last year where growth

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Speaker 3: GDP went backwards, and this year where on average it's

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Speaker 3: not going to have grown very much at all. You know,

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Speaker 3: if two years of weakness are followed by growth of

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Speaker 3: a bit over two percent, that's you know, that's still

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Speaker 3: that's that's just a modest recovery.

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Speaker 2: When you think about it, it's not it's not it's

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Speaker 2: not a strong picture. It's just a it's just a recovery.

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Speaker 1: Yeah, brilliant. Hey listen, Paul, always brilliant to talk to you,

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Speaker 1: and we'll talk to you again very shortly. That's Paul Bloxham,

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Speaker 1: hspc's chief economist.

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