Latest / Best of Business / Paul Bloxham: HSBC chief economist speculates about the future of interest rates

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Paul Bloxham: HSBC chief economist speculates about the future of interest rates · Best of Business

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  Speaker 1: You're listening to a podcast from news Talk zed B.
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  Speaker 1: Follow this and our wide range of podcasts now on iHeartRadio.
• 0:16
  Speaker 2: Blocks of agspci's chief economist is with us. Hey, Paul
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  Speaker 2: good A, are you even more confused this week than
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  Speaker 2: last about where the rates are going in New Zealand?
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  Speaker 3: No, I don't think so. I mean, I think I
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  Speaker 3: thought you were going to ask me about am I
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  Speaker 3: confused about the global picture? There's so much going on
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  Speaker 3: every day, it's shifting and changing and so on. But no,
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  Speaker 3: I think. I mean, I think the RBNZ is getting
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  Speaker 3: near the end of the using phase. And that's the
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  Speaker 3: view we've had for a while. I mean, we've got
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  Speaker 3: one more cut penciled into our central case. But I
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  Speaker 3: think that now the question is do we get that
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  Speaker 3: or not? Because no, the New Zealand economy is in
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  Speaker 3: an upswing. The partial indicators are showing an upswing. I
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  Speaker 3: would point out that we HSBC have been the top
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  Speaker 3: of consensus in terms of the forecast. We've had the
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  Speaker 3: strongest forecasts of all of the economists for New Zealand
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  Speaker 3: for this year, and we've had that all year long
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  Speaker 3: so far. And I think I'm sticking by that story
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  Speaker 3: that I think New Zealand's going to be in a good,
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  Speaker 3: strong upswing. And I think there are two big things
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  Speaker 3: going on, and we've said this again all year long. One,
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  Speaker 3: interest rates have come down a long way and they
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  Speaker 3: are going to start to get some grip and lift
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  Speaker 3: the economy, and I think you've seen some signs of that.
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  Speaker 3: And Two you've seen this very strong rise in dairy
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  Speaker 3: prices that is boosting incomes in the agricultural sector, and
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  Speaker 3: we know that can be a pretty big force for
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  Speaker 3: New Zealand. Once that gets going, it can really start
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  Speaker 3: to see more capex and more spending and more money
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  Speaker 3: coming into the cities as well. And so we think
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  Speaker 3: those two forces are turning the New Zealand economy around.
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  Speaker 3: We've got growth of two percent this year and as
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  Speaker 3: I say, the highest growth forecasts of any of the
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  Speaker 3: sort of forecasters.
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  Speaker 2: That people will be so thrilled to hear that because
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  Speaker 2: it's been such a tough grind, as you know, for
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  Speaker 2: the last few years in New Zealand. Tell me then,
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  Speaker 2: what you think is going on globally. I mean, where
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  Speaker 2: are we at now.
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  Speaker 3: Well, I think we're still yet to see there's still
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  Speaker 3: some bad news yet to come. I think that's the
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  Speaker 3: way I would see it. I sort of think about
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  Speaker 3: it as a three stage process. We've had a huge
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  Speaker 3: rise in uncertainty. All of this stuff that going on
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  Speaker 3: with trade policy has increased uncertainty to high levels. And
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  Speaker 3: uncertainty is not good for growth. It makes businesses, you know, cautious,
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  Speaker 3: and it means they don't know where where to invest
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  Speaker 3: and so on. We haven't seen the full effect of
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  Speaker 3: that yet in the economic indicators, and that's partly because
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  Speaker 3: we've had massive front loading. You know, there's been a
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  Speaker 3: whole bunch of pull forward of activity to try and
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  Speaker 3: get ahead of the arrival of the tariffs that are
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  Speaker 3: going to arrive, and so that's increased imports and increased
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  Speaker 3: exports and increased consumer spending. It's boosted the activity indicators.
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  Speaker 3: But it's going to roll over and when when when
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  Speaker 3: that rollo, when that front loading is finished, it's going
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  Speaker 3: to weaken growth. And I think we're still going to
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  Speaker 3: be in quite an uncertain global environment.
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  Speaker 1: You know.
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  Speaker 3: My sense is policy is shifting and changing so quickly
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  Speaker 3: that uncertainty will still be there. So I still think
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  Speaker 3: that's quite a bit of bad news for the global
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  Speaker 3: macroeconomy yet to feed through to the actual numbers.
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  Speaker 2: Now pull The thing is, we've had some bad news
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  Speaker 2: in Auckland today. Obviously everybody's houses has gone backwards, and
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  Speaker 2: you know, the wealth effect would suggest that as a result,
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  Speaker 2: the old wallets are going to snapshot. How long does
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  Speaker 2: it take for us to get over a disappointment like
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  Speaker 2: that before we start spending again.
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  Speaker 3: Well, my understanding is this is a reflection of house
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  Speaker 3: price declines that have already happened. Yes, and actually the
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  Speaker 3: helping market is already starting to stabilize because interest rates
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  Speaker 3: are coming down. And actually we should think about this
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  Speaker 3: as a reassessment of the value of houses that then
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  Speaker 3: affects the rates that people pay. Actually, in principle that
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  Speaker 3: should mean household's got a bit more income to spend
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  Speaker 3: because they haven't to spend as much on rates. I
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  Speaker 3: mean I So it's not clear to me that the
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  Speaker 3: sort of perceptions effect of oh, my house price is
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  Speaker 3: lower is going to be larger than the actual effect
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  Speaker 3: of incomes. They're going to have. Households are going to
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  Speaker 3: get a bit of a boost to their incomes because
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  Speaker 3: this is how the rates are calculated for housing.
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  Speaker 2: Even nobody gets a boost to the income. They just
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  Speaker 2: get a smaller rate increase. Potentially that's try.
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  Speaker 3: Well so relative to the expectation that they were going
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  Speaker 3: to get a larger one, they're not going to get.
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  Speaker 3: They're going to get. So I like it in principle.
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  Speaker 3: In principle, you've got it. You've got a little bit
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  Speaker 3: more spending power than you thought you'd have.
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  Speaker 2: Well, here's hoping Paul listen, appreciate it as always, Paul
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  Speaker 2: bloxhom Agspecies, Chief Economist.
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