Latest / Best of Business / Paul Bloxham: HSBC chief economist on what the oil price increases mean for both sides of the Tasman

Transcript

Paul Bloxham: HSBC chief economist on what the oil price increases mean for both sides of the Tasman · Best of Business

• 0:09
  Speaker 1: You're listening to a podcast from News Talk zed B.
• 0:12
  Speaker 1: Follow this and our wide range of podcasts now on
• 0:15
  Speaker 1: iHeartRadio with us.
• 0:17
  Speaker 2: Right now we have Paul Blocks, some HSBC's chief economists. Hello,
• 0:20
  Speaker 2: Paul good A, Right, So where are we at with
• 0:23
  Speaker 2: what you think the impact of the Iran war will have?
• 0:26
  Speaker 2: What the impact will be on the Australian and the
• 0:28
  Speaker 2: New Zealand economies.
• 0:31
  Speaker 3: Well, I think it's going to quite clearly drive inflation
• 0:34
  Speaker 3: to be higher and it's going to weaken growth at
• 0:37
  Speaker 3: the same time. This is not a good story, of course,
• 0:39
  Speaker 3: but it really isn't a good story. I mean, it's
• 0:42
  Speaker 3: a constraint on the supply of things that we need
• 0:45
  Speaker 3: to grow economy, oil, gas, fertilizer. There's a whole collection
• 0:48
  Speaker 3: of commodities that come out of the Middle East, and
• 0:51
  Speaker 3: of course the price of them's gone up, oil most pertinently,
• 0:54
  Speaker 3: most clearly, and petrol prices are up sharply, diesel prices
• 0:57
  Speaker 3: are up sharply. On the back of it. That will
• 1:00
  Speaker 3: slow down growth in the economy because it's a key
• 1:02
  Speaker 3: thing that we need, but at the same time it'll
• 1:04
  Speaker 3: lift inflation. I think the tricky question is going to
• 1:07
  Speaker 3: be for Central Banks of the RBA and the rbn
• 1:09
  Speaker 3: Z in terms of exactly how they respond to all
• 1:13
  Speaker 3: of this, because it's obviously pretty challenging when you've got
• 1:16
  Speaker 3: inflation that goes up and growth that's likely to slow down.
• 1:20
  Speaker 2: Okay, do you still think I mean, I see ASB
• 1:22
  Speaker 2: put out a note yesterday saying we're still going to
• 1:24
  Speaker 2: get I think it's about one point three percent growth
• 1:26
  Speaker 2: across the year. Can we still count on some growth
• 1:29
  Speaker 2: no recession?
• 1:31
  Speaker 3: Well, so, I think that the challenge here is that
• 1:33
  Speaker 3: there's a huge uncertainty. I mean, the big uncertainty is
• 1:36
  Speaker 3: we don't know how long the events in the Middle
• 1:39
  Speaker 3: East are going to continue, how long the Straight of
• 1:41
  Speaker 3: fore Mars is going to remain closed, and how much
• 1:44
  Speaker 3: that's going to continue to put upward pressure on oil prices.
• 1:47
  Speaker 3: In particular, the longer it goes on, the more likely
• 1:51
  Speaker 3: it is to drive oil price is higher. The more
• 1:53
  Speaker 3: likely it is it creates even more weakness in growth,
• 1:56
  Speaker 3: and we see growth slow down even further. Our working
• 2:00
  Speaker 3: assumption is that if it opens sometime soon in the
• 2:03
  Speaker 3: next little while, the oil price comes down a bit
• 2:05
  Speaker 3: and we don't end up with an outright contraction. New
• 2:08
  Speaker 3: Zealand and we end up with a short sort of
• 2:11
  Speaker 3: short lived contraction in Australia. Australia's in a little bit
• 2:13
  Speaker 3: of a different spot right now because they've already got
• 2:16
  Speaker 3: inflation that's too high and we've already had the RBA
• 2:18
  Speaker 3: lifting interest rates twice. So that's our working assumption. But
• 2:22
  Speaker 3: I think the longer this goes on, and we're talking
• 2:24
  Speaker 3: about you know, if it goes on for weeks in
• 2:26
  Speaker 3: two months, then the more likely it is to push
• 2:29
  Speaker 3: the economy into an an outright contraction and where you
• 2:33
  Speaker 3: know that's going to be the challenges say, not an
• 2:35
  Speaker 3: easy time for policymakers either, because what do they focus on?
• 2:39
  Speaker 3: Do they focus on the inflation that's going up or
• 2:41
  Speaker 3: do they focus on the growth that's slowing down? And
• 2:44
  Speaker 3: I think for the RB and Z for the moment,
• 2:47
  Speaker 3: I think they've got room to sit still. Next week,
• 2:49
  Speaker 3: I think they're going to sit still and sort of
• 2:51
  Speaker 3: watch and wait as the world and observe what's going
• 2:54
  Speaker 3: on and work out where they land by the next
• 2:56
  Speaker 3: By the following meeting for RBA, they haven't had that
• 2:59
  Speaker 3: rigal room, so they had to lift rights last month. Anyway,
• 3:03
  Speaker 3: earlier this month.
• 3:04
  Speaker 2: Anyway, how often are you revising? What you guys think.
• 3:08
  Speaker 3: Is how well. We try not to revise too frequently
• 3:12
  Speaker 3: because it does become difficult. But I think what we've
• 3:15
  Speaker 3: done this time around, which I think is quite useful,
• 3:17
  Speaker 3: is set out a base case as to where we
• 3:20
  Speaker 3: think things are based on reasonable assumptions that we put
• 3:24
  Speaker 3: together about last week basically, and then set out a scenario.
• 3:29
  Speaker 3: And the scenario sets out what would happen if things
• 3:33
  Speaker 3: turn out to be you know, oil prices stay higher
• 3:36
  Speaker 3: or go higher and stay higher for longer. And in
• 3:39
  Speaker 3: that scenario, obviously conditions are worse. The economy tips into
• 3:43
  Speaker 3: a larger contraction, and inflation stays higher for longer. And
• 3:47
  Speaker 3: so I think the most the way we can think
• 3:50
  Speaker 3: about that is it's useful because it gives us a
• 3:53
  Speaker 3: sense of, well, this is what we think will happen,
• 3:55
  Speaker 3: but there are other things. But if the circumstances are different,
• 3:59
  Speaker 3: we can think about it through that lens of a scenario.
• 4:02
  Speaker 2: I mean, are you guys working It seems to me
• 4:04
  Speaker 2: from the side of the ditch that New Zealand is
• 4:07
  Speaker 2: in a better position and then Australia, not only because
• 4:09
  Speaker 2: we are slightly better in terms of our inflation, but
• 4:12
  Speaker 2: also because our oil supply seems to be a little
• 4:15
  Speaker 2: bit more assured than Australias. Would you say that's the case,
• 4:18
  Speaker 2: I think so.
• 4:19
  Speaker 3: I think New Zealand is, and I think I was
• 4:21
  Speaker 3: actually in New Zealand last week talking to clients and
• 4:23
  Speaker 3: I was telling them this, and I think, you know,
• 4:25
  Speaker 3: it's hard for Kiwis to think, oh, really, we're in
• 4:28
  Speaker 3: a better spot than Australia, But I think the reality
• 4:31
  Speaker 3: is because inflation is already down more and because you've
• 4:36
  Speaker 3: had a number of years now of quite weak growth
• 4:39
  Speaker 3: in New Zealand, you're in a slightly better starting point
• 4:42
  Speaker 3: for the nature for the nature of the shock that's
• 4:45
  Speaker 3: just arriving. So it's another pickup in inflation. And so
• 4:48
  Speaker 3: inflation being lower to start with means there's a bit
• 4:51
  Speaker 3: more spare capacity in the economy, a little bit more
• 4:53
  Speaker 3: room for the RB and Z to sit still and
• 4:55
  Speaker 3: sort of observe, whereas in Australia, I mean, inflation is
• 4:58
  Speaker 3: already too high. It's three point seven percent already and
• 5:01
  Speaker 3: we're just about to get another step up in inflation.
• 5:03
  Speaker 3: So I think this has meant the RBA has just
• 5:06
  Speaker 3: not been as well placed to given the nature of
• 5:09
  Speaker 3: the shop that's arrived.
• 5:10
  Speaker 2: Yeah, Paul listen, good to talk to you. As always,
• 5:12
  Speaker 2: we'll talk to you again soon. Look after yourself. That's
• 5:13
  Speaker 2: Paul Block, some hspecies chief Economists.
• 5:16
  Speaker 1: For more from news Talks at b Listen live on
• 5:18
  Speaker 1: air or online, and keep our shows with you wherever
• 5:21
  Speaker 1: you go with our podcasts on iHeartRadio.