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Speaker 1: Right now though it is time for well, he's the

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Speaker 1: most famous economist on this program. I'll say that, for sure,

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Speaker 1: New Zealand is desperate for an economic recovery. But with

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Speaker 1: international market wobbles and fears of a Trump session, which

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Speaker 1: is a Trump induced recession, I'm told in the US,

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Speaker 1: how vulnerable are we and should we temper our expectations.

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Speaker 1: Paul Bloxham as HSBC's chief economists. He's in the country

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Speaker 1: from Sydney. It's great to have you in studio, Paul.

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Speaker 1: Good evening, great to be here. Do you how obsessed

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Speaker 1: are you with following what Trump is saying every day?

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Speaker 2: It is my day job to keep up with what

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Speaker 2: is going on, and it is certainly fast paced, to

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Speaker 2: say the least. I get actually quite.

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Speaker 1: A few clients.

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Speaker 2: I do lots of presentations and I've been doing them

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Speaker 2: here this week as well. And they say, you know,

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Speaker 2: it must be tough to be an economist because there's

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Speaker 2: so many moving parts and so much happening. And I say,

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Speaker 2: because I'm a contrarian, of course, I say, no, it's

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Speaker 2: a great time to be an economist because there's such

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Speaker 2: a so much going on, and if anything, the economics

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Speaker 2: framework is surely like one of the ones that you've

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Speaker 2: got to use to fit the facts together to make

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Speaker 2: some sense of how it goes so and how and

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Speaker 2: what you should think about it.

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Speaker 1: And so it's kept me busy, all right, Well synthesize

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Speaker 1: it for us, then is the answer here? Basically, there

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Speaker 1: is so much going on that it's it all equals uncertainty,

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Speaker 1: and uncertainty is bad.

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Speaker 2: There's an element of that story. Certainly, when things chop

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Speaker 2: and change a lot, it's difficult for businesses to be

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Speaker 2: able to know which way to move are they going

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Speaker 2: to you know, where are they going to invest, where

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Speaker 2: are they going to hire? And I think you're starting

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Speaker 2: to see that in some of the business surveys, you know.

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Speaker 2: So that's one aspect of this story. But there's a

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Speaker 2: lot of elements to what's being delivered. There's a trade

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Speaker 2: policy element. That's the one that gets all the attention,

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Speaker 2: which is sort of trade tariffs and what's been happening

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Speaker 2: with those, But there's also others. There's the deregulation story

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Speaker 2: and tax cuts that they're proposing as well, So you

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Speaker 2: sort of have to balance out all of the bits

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Speaker 2: of the overall story. I think I think net we're

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Speaker 2: looking at you know, that there's upside risk to US inflation,

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Speaker 2: and that's something we need to think about in terms

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Speaker 2: of global interest rates and what it means, and the

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Speaker 2: US dolar which has remained strong. And I think there

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Speaker 2: is some risk to US growth from all of this,

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Speaker 2: But the major thing is it has a flow on

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Speaker 2: effect to the rest of the world. So the risk

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Speaker 2: overall to the global economy is probably tilted to the downside.

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Speaker 2: So those are the ways, at least some guideposts for

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Speaker 2: thinking about what's going on. I think, of course here

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Speaker 2: in New Zealand, you want to think about what it

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Speaker 2: means for New Zealand, Well, you know, I think the

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Speaker 2: direct impact is actually fairly small in the scheme of things,

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Speaker 2: the trading relationships fairly small. New Zealand sells a lot

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Speaker 2: more into the Asian markets and so on, and so

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Speaker 2: I think it's a fairly small effect overall, but it's

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Speaker 2: not insignificant. But I actually think New Zealand's in doing

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Speaker 2: a little bit better. I mean, I think this year

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Speaker 2: you're going to see an upswing in the New Zealand economy.

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Speaker 1: I think, well, I think that's what everyone's worried about.

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Speaker 1: Is we all feel the same way, but we're worried

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Speaker 1: someone's going to come and eat our lunch. You know,

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Speaker 1: there's going to be a Donald Trump shaped bite out

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Speaker 1: of our sandwich that we were expecting to eat this yet.

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Speaker 2: So I think you've got a couple of things going

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Speaker 2: for you. One of them is, of course, that inflations

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Speaker 2: come down enough now that the rbnz's cutting interest rates,

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Speaker 2: and not just by a little bit, they've cut interest

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Speaker 2: rates already by one hundred and seventy five basis points.

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Speaker 2: That's quite a lot of stimulus that's starting to pour

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Speaker 2: into the New Zealand economy. I think you're seeing that

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Speaker 2: showing up in surveys, consumer sentiment surveys, and so on.

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Speaker 2: So that's one tailwind. And the other tailwind you've got

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Speaker 2: is that well, dairy prices have risen, meat prices are elevated,

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Speaker 2: you've got more volumes, Your terms of trade is positive,

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Speaker 2: so you're going to get a national income tailwind from

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Speaker 2: that story. And both of those things we think will

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Speaker 2: lift growth. After a pretty tough year last year in

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Speaker 2: terms of the economy contracting, I think you're going to

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Speaker 2: get quite a decent bounce back through this year pretty

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Speaker 2: strong bounce back with if you look at it through

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Speaker 2: the year. And so those things are at work, and

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Speaker 2: as you say, I guess there's risks out there from

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Speaker 2: the global story. But one of the things to keep

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Speaker 2: in mind is you're tied to the China story a lot,

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Speaker 2: and China is not able. China story is pivoting more

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Speaker 2: towards the consumer. So instead of being as driven by

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Speaker 2: metals intensive activities like building factories and building property, they

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Speaker 2: can't do as much of that. They've already done a

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Speaker 2: lot of that, but they're pivoting their own stimulus measure

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Speaker 2: towards the consumer. If the Chinese consumer picks up, which

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Speaker 2: is part of what we think is likely, then that's

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Speaker 2: actually a positive for New Zealand. So there's a few

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Speaker 2: tailwinds here.

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Speaker 1: You talk about the Reserve Bank, and you've been at

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Speaker 1: this conference in Wellington last week where all the nerds

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Speaker 1: from central banks around the world went and had a

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Speaker 1: little chat. What did you do? What survivee You picked

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Speaker 1: up there about Adrian or I mean, was this quite

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Speaker 1: a shock for people in the money economy world.

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Speaker 2: I'd think that everyone was shocked by what happened. I

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Speaker 2: think that's a reasonable surmise. I think the conference was

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Speaker 2: very focused on a celebration in a way of the

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Speaker 2: fact that this is the central bank, the RBNZ, the

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Speaker 2: first central bank to have adopted inflation targeting. They did

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Speaker 2: that thirty five years ago. And I know your audience

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Speaker 2: will say, well, it's inflation targeting. How good's it been. Actually,

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Speaker 2: it's been a really robust system for being able to

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Speaker 2: manage cycles and economies. And not only has it well here,

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Speaker 2: but it's been in New Zealand led the way. The

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Speaker 2: RBNZ was the first central bank to do it, and

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Speaker 2: then the other central banks around the world have all

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Speaker 2: adopted the similar sorts of strategies, including the RBA and

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Speaker 2: the Federal Reserve and the Bank of England and so

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Speaker 2: you know, New Zealand was where where all this started.

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Speaker 2: It's it's actually it's the best, the best system available

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Speaker 2: for central banks to manage economies. It's not perfect, and

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Speaker 2: you can learn a lot still, but it's it's it's

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Speaker 2: the way that central banks go about it. So I

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Speaker 2: think that's a lot of what the conference was really about,

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Speaker 2: was sort of going and looking at how well it's

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Speaker 2: performed and how how central bankers can do it better

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Speaker 2: in the future.

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Speaker 1: One of the things you're one of the biggest complaints

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Speaker 1: you get about this targeting of monetra the way monetary

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Speaker 1: policy operates is that you're taking money away. You're taking

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Speaker 1: money out of people's pockets to try and dampen down,

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Speaker 1: you know, demand and try and have an effect on inflation,

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Speaker 1: and that money just sort of disappears, you know, Like

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Speaker 1: there are people who say, oh, why don't we have

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Speaker 1: a different system where that money would be put into

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Speaker 1: some kind of saving sphere call or something rather than

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Speaker 1: just sort of arbitrarily disappearing into the ethos when the

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Speaker 1: reserve bankups the ocr.

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Speaker 2: Well, there are a number of reasons. I mean, the

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Speaker 2: first one is you're absolutely right to describe it as

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Speaker 2: you're lifting and lowering. I might add there've been lowering

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Speaker 2: interest rates recently, so actually what they're doing is actually

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Speaker 2: allowing people more income to spend. They're trying to get

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Speaker 2: the economy to pick up because inflation has come down.

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Speaker 2: But you are setting a policy rate to try to

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Speaker 2: manage the cycles in demand. If demand's picking up too much,

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Speaker 2: you're slowing it down by lifting rates. And likewise, if

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Speaker 2: demand has slowed too much, you start to lower interest rates,

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Speaker 2: and you guide that by looking at the inflation rate,

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Speaker 2: which balances that out. You're right absolutely that this is

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Speaker 2: not the only way you could do things. You could

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Speaker 2: actually use your fiscal policy tools. You could set taxes

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Speaker 2: and spending by government and so on, and try and

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Speaker 2: complement what you do in terms of managing that cycle.

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Speaker 2: It doesn't have to just be that you'd use monetary policy.

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Speaker 2: But the way we've gravitated, we've gravitated to a system

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Speaker 2: whereby the central bank is independent and it sets policy

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Speaker 2: to try and manage that cycle. Because well, fiscal policy

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Speaker 2: doesn't always end up being set in a way that

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Speaker 2: manages the cycle as effectively. So that's the system we have,

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Speaker 2: and it works. It's not perfect, as I said, but

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Speaker 2: it works. It works fairly well. And this was the

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Speaker 2: first country to have adopted this system that every you know,

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Speaker 2: all the other countries around the world have effectively moved

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Speaker 2: towards over time.

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Speaker 1: I'm not sure it's something we're ready to sing and

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Speaker 1: celebrate about just at the moment, only because we've been

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Speaker 1: recently scarred.

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Speaker 2: That's true, I know. But it's worth keeping in mind

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Speaker 2: that interest rates are now coming down exactly, and they're

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Speaker 2: probably going to come down a bit further yet, and

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Speaker 2: that's going to start to stimulate. That is already starting

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Speaker 2: to stimulate the economy into an upswing, and that's a

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Speaker 2: that's a positive. Inflation was the major problem. Inflation's come

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Speaker 2: down now it's sitting around the midpoint of the rbnz's

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Speaker 2: target band, so they've been able to lower interest rates

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Speaker 2: and start to stimulate the economy.

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Speaker 1: Paul, thank you very much for coming in. Great to

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Speaker 1: see you. Thank you. Paul Bloxam, Hsbcchip Economists with us

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Speaker 1: in studio. For more from Hither Duplessy Allen Drive, listen

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Speaker 1: live to news talks it'd be from four pm weekdays,

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Speaker 1: or follow the podcast on iHeartRadio