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Paul Bloxham: HSBC chief economist ahead of Australia's GDP announcement · Best of Business

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  Speaker 2: Australian GDP comes out tomorrow and economists are expecting some
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  Speaker 2: growth just a little bit. Paul blocks them as Agspecies
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  Speaker 2: chief economist and with us Now, Hey, Paul, I see
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  Speaker 2: a couple of banks have revised their forecasts down and
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  Speaker 2: they're just sitting above zero at the moment. What are
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  Speaker 2: you calling on the.
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  Speaker 3: Quarter itself zero point three over the year one percent
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  Speaker 3: and irrespective, that would be a pretty weak print really,
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  Speaker 3: and that's that's what we're expecting. The growth is quite weak,
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  Speaker 3: as you say, it's sort of somewhere in that very
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  Speaker 3: very low range for growth in the economy. But that's
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  Speaker 3: what's needed in order to get inflation down. We've been
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  Speaker 3: having sluggish growth in Australia for some time. As you
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  Speaker 3: also know, we haven't had a contraction in GDP. I
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  Speaker 3: mean other places in New Zealand included, have had declining GDP.
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  Speaker 3: In order to get inflation down, Australia has chosen this
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  Speaker 3: pathway of flowing growth down, having sluggish growth for a
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  Speaker 3: longer period to get inflation down. But not actually having
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  Speaker 3: an outright contraction.
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  Speaker 2: Yeah, I mean, is that as close as you get
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  Speaker 2: to landing a jumbo jet on a postage stemp?
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  Speaker 3: Well, this is it, right? So this is the aim
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  Speaker 3: is to deliver a soft landing and also get inflation
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  Speaker 3: to come down. And the tradeoff is it may take longer,
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  Speaker 3: We may have a long we are likely to have
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  Speaker 3: a longer period of weak growth in order to get
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  Speaker 3: inflation to come down. And the other option is to
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  Speaker 3: have a shorter period of much much weaker growth, which
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  Speaker 3: is sort of where the direction of New Zealand's travel.
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  Speaker 3: We think when the New Zealand numbers come out in
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  Speaker 3: a few weeks time, it will show that in the
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  Speaker 3: second quarter GDP probably fell in New Zealand. So there
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  Speaker 3: are two sort of slightly they're different pathways to looking
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  Speaker 3: to get inflation back to target.
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  Speaker 2: Which one is the better one?
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  Speaker 3: Well, this is a good question and it really is
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  Speaker 3: difficult to answer because it depends on, you know, preferences.
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  Speaker 3: It depends on how heavily you wait the priority of
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  Speaker 3: getting inflation down fast, and how you weight that against
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  Speaker 3: how much unemployment you're prepared to accept, how much weaker
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  Speaker 3: growth you're prepared to accept. And so it's how much
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  Speaker 3: weight you place on those two priorities. And it seems
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  Speaker 3: that the RBNZ has put a very high priority on
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  Speaker 3: getting inflation down faster, and the RBA is finding, you know,
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  Speaker 3: putting a bigger weight on trying to stay close to
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  Speaker 3: full employment while getting inflation down. It really just depends
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  Speaker 3: on how much weight those things carry.
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  Speaker 2: Do you have an opinion, Paul, Because at the outset
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  Speaker 2: when this debate was happening, I thought, no, inflation's the
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  Speaker 2: most important thing, go for it. But as the longer
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  Speaker 2: this goes on in New Zealand and the more businesses
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  Speaker 2: I see closed and the more economic scarring ICEE happen,
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  Speaker 2: and particularly with the young people, I am starting to
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  Speaker 2: question myself. So what's your opinion.
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  Speaker 3: I think that it's going to take time for us
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  Speaker 3: to be able to look back and assess where we landed.
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  Speaker 3: I don't think it's actually reasonable to sort of sit
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  Speaker 3: in the middle of this process and try to make
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  Speaker 3: a care clear judgment as to which turns out to
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  Speaker 3: be the better one. Unfortunately, it's going to take time
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  Speaker 3: for us to sort of work out how things do
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  Speaker 3: actually turn out. Because inflation's not back at target yet.
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  Speaker 3: In Australia it's still well, you know, well above target
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  Speaker 3: and it's going to take time. It's actually not quite
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  Speaker 3: back at target in New Zealand yet either, although the
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  Speaker 3: arbience of that is obviously decided they can start to
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  Speaker 3: lower interest rates. So I still think it's a bit
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  Speaker 3: early to really decide which one was the better pathway.
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  Speaker 3: We're going to need a bit more time to work
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  Speaker 3: it out.
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  Speaker 2: Listen back to the GDP number at zero point three
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  Speaker 2: percent for the quarter, is that still a recession per
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  Speaker 2: capita per capita?
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  Speaker 3: Yes, so population growth is still outpacing that. So GDP
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  Speaker 3: per capita is falling. And that's the case of both
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  Speaker 3: New Zealand and Australia. But in Australia's case, we've had
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  Speaker 3: very strong population growth and obviously quite weak GDP growth
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  Speaker 3: per capita, GDP is declining, but overall GDP is not
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  Speaker 3: because the growth is being supported by more people coming in.
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  Speaker 2: Yeah, fascinating stuff, Paul, thank you very much. Are we
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  Speaker 2: are going to see a very interesting divergency between the
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  Speaker 2: two and be able to decide which are the two approaches?
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  Speaker 2: Is correct? That's Paul Bloxham, HSBC's Chief Economist.
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