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Speaker 1: Bryan Bridge.

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Speaker 2: Never mind the old cautious talk about green shoots. Confidence

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Speaker 2: is back in our economist predictions for the year ahead,

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Speaker 2: which is a great thing. HSBC predicting above trend GDP

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Speaker 2: growth two and a half percent this year. This is

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Speaker 2: up from a very weak point four last year. There

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Speaker 2: is a warning though an election year, politicians should be

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Speaker 2: focusing on pro growth economic reform to lift productivity. Paul

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Speaker 2: Bloxham is HSBC's chief economist. With me now, Paul, good, evening, Good,

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Speaker 2: Why are you so confident about our economic recovery? Well,

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Speaker 2: I mean it's underway. We've seen the PMI, we've seen

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Speaker 2: the PSI, so the ingredients are there.

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Speaker 1: That's right. Well, so you've got quite a few of

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Speaker 1: the ingredients.

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Speaker 3: I mean the ingredients we think are primarily that all

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Speaker 3: interest rates have come down a long way, and so

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Speaker 3: monetary conditions are quite loose and below neutral and mid

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Speaker 3: blow neutral cash rates setting from the RBNZ and that

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Speaker 3: should provide some support. I think it already is, and

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Speaker 3: that's partly reflecting in the PMIS and the cop and

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Speaker 3: consumer and business confidence. Consumer spendings picked up a bit,

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Speaker 3: so that's part of it. And then the other part

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Speaker 3: of the story is that well, dairy and meat prices

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Speaker 3: have are still fairly high. Dry price have come off

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Speaker 3: their peaks, but they're still quite high relative to history.

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Speaker 3: So we've seen quite a large boost of rural incomes.

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Speaker 3: And the first step had been that the rural sector

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Speaker 3: seemed to be using a lot of that to pay

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Speaker 3: down debt, and it of course had more of a

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Speaker 3: supporting effect in the South Island.

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Speaker 1: But we think that this year we're going.

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Speaker 3: To start to see more of it spread through the

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Speaker 3: broader economy. Is the farm sector boost income starts to

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Speaker 3: spit through to other parts of the country as well,

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Speaker 3: and that's typically how it works.

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Speaker 1: It usually takes it's usually got a lag.

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Speaker 3: That lag might have been a bit longer this time around,

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Speaker 3: But we think those two are the big forces that

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Speaker 3: are likely to be driving the recovery that, as you say,

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Speaker 3: is starting to show signs of arriving already and is

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Speaker 3: likely to leave lift growth. And finally, I mean you've

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Speaker 3: had a couple of years of really weak growth in

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Speaker 3: New Zealand, you'd say almost three years actually of really

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Speaker 3: weak conditions, and finally you're starting to get an upswing

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Speaker 3: in growth.

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Speaker 1: In fact, you know.

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Speaker 3: One of the other things to point out is that

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Speaker 3: if you do get two and a half percent growth,

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Speaker 3: which is our forecast, we're sort of the top edge

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Speaker 3: of consensus, you'd be outpacing the growth across the Tasman.

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Speaker 1: I don't think Australia is going to be able to

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Speaker 1: grow that fast.

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Speaker 3: In fact, I think Australia can't grow really much faster

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Speaker 3: than it's growing already, which is just a bit over

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Speaker 3: two percent. And so New Zealand might very well outperform

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Speaker 3: Australia this particular this year.

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Speaker 2: Yeah, it's about time too. We've got a lot of

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Speaker 2: making up to do. Of course. Now what about the

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Speaker 2: tea word, you know, the tariffs and Trump because he's

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Speaker 2: markets haven't reacted, you know Greenland for example, he's troying

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Speaker 2: tariffs around. Markets haven't reacted in the same way that

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Speaker 2: they might have reacted twelve months ago. Have we kind

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Speaker 2: of learned to listen from that and are we there

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Speaker 2: for less concerned about a disruption on that front.

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Speaker 1: Well, I think there's a lot in that and it's

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Speaker 1: a big question.

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Speaker 3: I mean, I think if you look back over the

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Speaker 3: past year, the experience last year, the tariff effect wasn't

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Speaker 3: as large as was expected. That was partly because actually

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Speaker 3: in the end, the tariffs weren't as high. In the end,

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Speaker 3: we also saw that, you know, the story, the story

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Speaker 3: was still quite well supported by a lot of other

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Speaker 3: factors like the AI expansion and the data center investment story,

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Speaker 3: and that kept global truth trade holding up pretty well.

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Speaker 3: Now we expect as we've run through this year that

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Speaker 3: that's going to be the primary a key source of

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Speaker 3: growth too. Where reasonably positive on global growth this year,

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Speaker 3: But you have to keep in mind that there's it

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Speaker 3: could play out differently. It depends on what happens with

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Speaker 3: the tariffs. It depends on how these geopolitical developments we're

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Speaker 3: watching right now do play out. Markets, as you say,

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Speaker 3: have responded so far with a sense that you know,

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Speaker 3: things won't you know, things are still okay, and then

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Speaker 3: the markets have discounted all a lot of the bad news.

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Speaker 3: But it's you know, there's still a risk there that

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Speaker 3: we need to watch quite carefully.

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Speaker 2: When do we start feeling it? This is the big

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Speaker 2: political Christian heading into an election year. You know, it's

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Speaker 2: one thing to talk about it, When do people feel it?

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Speaker 3: I think one of the big things will be the

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Speaker 3: labor market turning around, and so the pick up in confidence,

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Speaker 3: the improvement and conditions, the fact that the business sector

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Speaker 3: is starting to look better and the consumers are starting

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Speaker 3: to spend a bit more. When that actually starts to

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Speaker 3: feed through to firms starting to do more hiring and

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Speaker 3: the labor markets starting to improve, and that then creating

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Speaker 3: enough jobs that it starts to put down with pressure,

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Speaker 3: we get to start to see the unemployment rate coming down.

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Speaker 3: That also might start to see fewer people leaving and

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Speaker 3: more people coming back from Australia as well, which has

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Speaker 3: been a feature of the story of the past couple

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Speaker 3: of years.

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Speaker 1: But I think the turning in the.

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Speaker 3: Labor market is going to be one of the main

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Speaker 3: things that's going to make it start to feel a

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Speaker 3: bit better. I think another thing to point to would

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Speaker 3: be when we start to see the housing market improve.

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Speaker 1: A bit more.

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Speaker 3: You know, New Zealand's had a very weak housing market

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Speaker 3: for the past couple of years, but I think once

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Speaker 3: the labor market turns, that will also support some a

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Speaker 3: bit of an upswing in the housing market. That combination

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Speaker 3: will get things going and we're expecting that to play

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Speaker 3: out through the year.

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Speaker 2: When you say the Australian economy can't grow or sort

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Speaker 2: of tapping out it two percent. What's holding it back?

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Speaker 1: Well, it's already operating it near its capacity, I mean.

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Speaker 3: And so a part of that story is that we

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Speaker 3: didn't have as big an economic downturn after the pandemic.

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Speaker 3: So if you think back to the story, inflation surged

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Speaker 3: after the pandemic and central banks lifted interest rates to

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Speaker 3: slow their economies down, and in New Zealand's case, the.

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Speaker 1: Economy slowed down a lot.

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Speaker 3: You barely had any growth for two and a half years,

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Speaker 3: and that's been left you with a lot of spare capacity.

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Speaker 3: So that now that you're in an economic ups when

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Speaker 3: you've got capacity to draw back in and get the

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Speaker 3: economy going and grow a bit faster. In Australia's case,

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Speaker 3: the economy the RBA didn't lift interest rates as much,

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Speaker 3: the economy didn't slow as much, and as a result

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Speaker 3: of that, even a bit of an upswinging growth which

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Speaker 3: we saw through last year has been enough to absorb

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Speaker 3: that spare capacity and get us back to operating at

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Speaker 3: full capacity. We're operating at full employment, so the economy

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Speaker 3: doesn't seem to be able to grow any faster than

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Speaker 3: this sort of two percent rate that we're running out

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Speaker 3: at the moment. And what that's going to mean, I think,

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Speaker 3: you know, at least our Australian view is that the

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Speaker 3: RBA will probably have to start lifting interest rates this

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Speaker 3: year to lean into it, because we are already operating

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Speaker 3: out our capacity. But what it also means is that

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Speaker 3: that run rate, that potential growth rate we're seeing, the

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Speaker 3: two percent, is not particularly impressive. We need to focus

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Speaker 3: a lot more on doing reform to lift productivity and

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Speaker 3: allow us to be able to maybe grow a bit

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Speaker 3: faster and lift living standards more.

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Speaker 2: Productivity obviously a big, well bigger problem for us than

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Speaker 2: it is for you though, right given the state of

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Speaker 2: our of our wages you know, still tracking thirty forty

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Speaker 2: percent behind Australia. What you know, when it comes to

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Speaker 2: politics election year, what should they be saying to us

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Speaker 2: to actually fix that?

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Speaker 3: Well, I think productivity, you've got to think about levels

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Speaker 3: and changes. And I know this is getting into a

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Speaker 3: lot of detail, but yes, the level of productivity in

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Speaker 3: New Zealand is lower than Australia's. That's true, but both

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Speaker 3: countries have had really quite sluggish growth in productivity Australia's

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Speaker 3: productivity growth has stalled in recent years. So you know,

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Speaker 3: to that point, both countries need to focus on reform

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Speaker 3: agendas pro growth reform agendas that will help to support growth.

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Speaker 3: And you know, a part of that is a continued

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Speaker 3: focus on improving the tax system in both countries, in

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Speaker 3: Australia and New Zealand, and a lot of the story

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Speaker 3: is also to focus on trying to get investment in

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Speaker 3: areas where exports can grow more, where we can sell

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Speaker 3: more into the global into the global economy in Australia's case,

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Speaker 3: attracting more investment into critical minerals and potentially services exports

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Speaker 3: and those areas in New Zealand's case obviously supporting the

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Speaker 3: ongoing dairy meat agricultural farming story, but also other areas

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Speaker 3: like technology we're seeing you know, we're seeing more investment

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Speaker 3: in technology and AI and so on, and those sorts

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Speaker 3: of exports are I think an increasing area where both

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Speaker 3: countries have some opportunities if we can grasp them.

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Speaker 2: Always good check, appreciate your time. Paul Blockhom Chief Economist HSBC.

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