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Paul Bloxham: HSBC chief economist on whether the 'Australia dream' is fading · Best of Business

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  Speaker 1: You're listening to a podcast from Newstalk ZB. Follow this
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  Speaker 2: With us right now, we have Paul Bloxham, HSBC's chief economist. Hi, Paul. G'day. Paul,
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  Speaker 2: I'm interested in your take on the headline that I
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  Speaker 2: saw in the papers today here in New Zealand, which
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  Speaker 2: is basically that the Australian dream is fading. What do
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  Speaker 2: you make of that?
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  Speaker 1: Oh, I think that we've got some pretty big challenges
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  Speaker 1: at the moment over here in Australia. And I think,
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  Speaker 1: you know, what that is a reference to is that
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  Speaker 1: disposable incomes in Australia on a per capita basis haven't
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  Speaker 1: been rising in the past few years. We've talked about this,
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  Speaker 1: you and I, quite a lot. It's a manifestation of
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  Speaker 1: having very weak productivity growth that we just haven't had
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  Speaker 1: a lift in our incomes on a per capita basis.
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  Speaker 1: So I think that it is a more challenging spot
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  Speaker 1: than Australia has been in quite some time. And I
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  Speaker 1: think that's what that sort of reference is pointing to.
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  Speaker 1: The In the big intergenerational report that the government published
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  Speaker 1: a couple of weeks ago, they showed that people who
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  Speaker 1: were born in the 90s are now the first generation
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  Speaker 1: in quite many, quite a few, which are on a
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  Speaker 1: lower track for their income in their lifetime than the
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  Speaker 1: previous people born in the 80s and the 70s and
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  Speaker 1: the 60s and the 50s. And so, you know, we
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  Speaker 1: can see clear evidence that income growth has slowed down
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  Speaker 1: a lot.
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  Speaker 2: But so why would they be on a lower track
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  Speaker 2: than somebody in the workforce existing? Like why are they
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  Speaker 2: going to end up being paid less?
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  Speaker 1: Well, we've got less productivity. The economy is not having
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  Speaker 1: the same sort of productivity growth that we've had in
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  Speaker 1: the past. And so we're not able to lift, their
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  Speaker 1: incomes are not rising as much as previous generations. And
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  Speaker 1: so we're just not keeping up. They're not on the
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  Speaker 1: same pathway of the previous generations. And a lot of
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  Speaker 1: that comes down to, as I say, productivity growth that's weak.
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  Speaker 1: And I guess the way I see it is Australia
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  Speaker 1: has got a lot of growth opportunities. We were a
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  Speaker 1: huge continent, big resource base tied to Asia, but the
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  Speaker 1: challenges are being created by our own tax system, which
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  Speaker 1: is inefficient, by our own regulatory environment, which is constraining
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  Speaker 1: investment decisions, by a lack of competition in the economy.
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  Speaker 1: And we're seeing that reflected in less investment and less
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  Speaker 1: innovation by businesses. And that, in turn, is leaving us
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  Speaker 1: with an economy that just has very low productivity growth.
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  Speaker 1: And so... you know, if you can't grow the pie,
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  Speaker 1: then it's, you know, there's less pie to share around,
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  Speaker 1: as it were, in terms of the overall economy.
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  Speaker 2: I mean, obviously, our two economies are at different parts
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  Speaker 2: of the cycle, right? We're coming out of the recession,
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  Speaker 2: you guys are heading into yours. Even then, though, your
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  Speaker 2: numbers are still better than ours. I mean, your unemployment
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  Speaker 2: is sort of in the late fours, ours is in
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  Speaker 2: the fives. At what point do you think our economy
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  Speaker 2: overtakes the Australian economy?
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  Speaker 1: Well, I think on the growth figures, it's going to
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  Speaker 1: be this year. I think on the growth figures, we're
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  Speaker 1: already seeing an upswing in New Zealand that is underway
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  Speaker 1: and the growth figures have strengthened. And in Australia, you're
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  Speaker 1: seeing the growth numbers have slowed down, I think. So
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  Speaker 1: this year, I think you're going to see that growth
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  Speaker 1: in New Zealand outpaces Australia. And that'll be the first
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  Speaker 1: year in quite some time where that's happened. But that's
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  Speaker 1: going to be the case. And then you're describing what's
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  Speaker 1: happening in the labour market. You're right. You know, employment
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  Speaker 1: growth is actually picking up in New Zealand and it's
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  Speaker 1: slowing down in Australia. And what that will mean is
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  Speaker 1: that the unemployment rate in Australia is on a rising trajectory.
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  Speaker 2: It's rising.
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  Speaker 1: Yes, it's lower at the moment still than New Zealand's,
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  Speaker 1: but it's rising. And in New Zealand, we expect that
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  Speaker 1: the improvement you're seeing at the moment is going to
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  Speaker 1: start to feed through to an unemployment rate that peaks
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  Speaker 1: and starts to fall soon. But the labour market, the
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  Speaker 1: unemployment rate tends to lag the overall cycle. So what
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  Speaker 1: is happening already in the growth figures is will show
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  Speaker 1: up in things like the unemployment rate in the coming quarters.
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  Speaker 2: Now, on the Reserve Bank, we've obviously got the big
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  Speaker 2: Reserve Bank decision on the OCR next week. How much
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  Speaker 2: of their minds do you think have already been made up?
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  Speaker 2: How much are they waiting for the inflation number this week?
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  Speaker 1: I think that it's fairly clear that interest rates still
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  Speaker 1: need to keep climbing in New Zealand. And that's partly
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  Speaker 1: because the cash rate is still below neutral. It's still reasonably,
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  Speaker 1: you know, a reasonable distance below neutral. The economy's in
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  Speaker 1: an economic upswing and inflation is still, is above target. Now,
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  Speaker 1: the print we get later this week will, we think,
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  Speaker 1: likely confirm that inflation's above target. And so I don't
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  Speaker 1: think that's going to be the decisive factor as to
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  Speaker 1: whether they lift interest rates or not.
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  Speaker 2: But of course, the.
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  Speaker 1: Magnitude of it could matter in terms of the sort
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  Speaker 1: of message they deliver, whether, you know, this is, hike
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  Speaker 1: and there's going to be more to come or whether
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  Speaker 1: there's a lot more to come. That's what this inflation
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  Speaker 1: print is going to determine, less so whether they lift rates,
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  Speaker 1: but rather whether there are more rate, you know, how
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  Speaker 1: many more rate hikes there are to come.
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  Speaker 2: Yeah, fair point. Paul, always good to talk to you, mate.
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  Speaker 2: You look after yourself. Paul Bloxham, HSBC Chief Economist.