Latest / Best of Business / Kelly Eckhold: Westpac Chief Economist on what the latest GDP drop means for the economy

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Kelly Eckhold: Westpac Chief Economist on what the latest GDP drop means for the economy · Best of Business

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  Speaker 1: You're listening to a podcast from News talks'b Follow this
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  Speaker 2: There are strong calls for the Reserve Bank here in
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  Speaker 2: New Zealand to cut the ocr by half a percent
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  Speaker 2: double cut when it meets on October eight. The economy
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  Speaker 2: contracted much more than predicted, with a zero point nine
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  Speaker 2: percent fall and GDP in the second quarter of the year.
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  Speaker 2: Calia Cold is the chief economist at Westpac. Hey, Kelly, Hi,
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  Speaker 2: So what are you calling for fifty basis points next month?
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  Speaker 2: Twenty five in November?
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  Speaker 3: That's right, we upgraded our October call from a twenty
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  Speaker 3: five point cut to a fifty point cup.
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  Speaker 2: Why.
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  Speaker 3: Well, the GDP number was quite a bit weaker than
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  Speaker 3: everybody's predictions, certainly the Reserve banks projections, which in this
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  Speaker 3: game are the only ones that really matter. Last week,
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  Speaker 3: the governor had indicated that after data suggested they needed
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  Speaker 3: to go faster, they would, So we're taking them at
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  Speaker 3: his word there.
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  Speaker 2: Okay, but isn't it historic, Cali? I mean, it's happened
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  Speaker 2: in Q two, Q three is already better. Therefore, you know,
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  Speaker 2: are we are we doing? Doesn't actually necessitate the fifty
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  Speaker 2: basis points.
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  Speaker 3: Well, I think it's going to take them more quickly
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  Speaker 3: to the same point. I mean, I think it is
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  Speaker 3: right that the Q three indicators look better than Q two,
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  Speaker 3: but we didn't when we looked at the data have
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  Speaker 3: a reason to think that it was all going to
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  Speaker 3: totally unwind immediately. So hence, you know, it does make
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  Speaker 3: sense that if the Reserve Bank thought they had a
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  Speaker 3: lot of too much excess capacity in the economy back
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  Speaker 3: in August, they're only going to think there's more now.
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  Speaker 2: Yeah, do you think that? I mean, are you at
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  Speaker 2: all worried about the impact this is going to have
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  Speaker 2: on consumer confidence?
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  Speaker 3: Well, I think in that sense, it's already old data.
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  Speaker 3: And we did release our own long running consumer confidence
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  Speaker 3: survey earlier this week, which showed that consumers we're not
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  Speaker 3: feeling particularly chirpy compared to the last time that we
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  Speaker 3: did the did the survey three months ago. So I
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  Speaker 3: think people already know that. I think what they perhaps
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  Speaker 3: may be heartened by is that lower interest rates come
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  Speaker 3: in a bit sooner.
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  Speaker 2: Yeah, well, this is the thing, isn't it. I feel
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  Speaker 2: like what's going on right now in this country is
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  Speaker 2: that everybody is so nervy and so scared about what's
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  Speaker 2: going to happen and whether we're actually through the worst
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  Speaker 2: of it, that any bit of bad news just kind
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  Speaker 2: of sets that off again. And so is the case
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  Speaker 2: that if you cut the ocr by fifty basis points,
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  Speaker 2: you just boost the confidence a little bit more.
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  Speaker 3: That was the Reserve Bank's argument back in August that
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  Speaker 3: they needed to move more aggressively to put in those
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  Speaker 3: guard rails to try to break through that caution that
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  Speaker 3: businesses and households were feeling, particularly I think in the
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  Speaker 3: major urban areas where they just haven't been the beneficiary
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  Speaker 3: so far of the big gaining term to trade there
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  Speaker 3: we've hed.
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  Speaker 2: Kelly, can we explain how the Reserve Bank got the
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  Speaker 2: so monumentally wrong.
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  Speaker 3: In terms of the GDP forecast. I think they got
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  Speaker 3: it the same way wrong is we all did. Where
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  Speaker 3: it's just really difficult in the last couple of years
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  Speaker 3: to forecast call the GENP numbers. You recall in the
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  Speaker 3: middle last year, for example, we all got blown out
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  Speaker 3: of the water in terms of what happened in Q
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  Speaker 3: two Q three. You know, I think that you would
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  Speaker 3: have expected with two hundred and fifty points of easing
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  Speaker 3: in the tin that the economy would be more resilient
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  Speaker 3: to some of the shops that have been going on
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  Speaker 3: out there at the moment, and hence they thought reasonably
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  Speaker 3: I thought at the time that they should be slowing
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  Speaker 3: down and seeing the effect of what they've done. I
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  Speaker 3: appreciate that in hindsight it probably looks like they could
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  Speaker 3: have gone a bit faster and a bit sooner. But
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  Speaker 3: you know, the measure of these situations is that when
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  Speaker 3: you recognize that you've made a mistake, that you'd take
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  Speaker 3: quick corrective action. And I think that fifty point cut
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  Speaker 3: in October will certainly fit that bill.
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  Speaker 2: Yeah, I mean, look, the thing about it is, though, Kelly,
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  Speaker 2: I understand that this is a difficult thing to get right. However,
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  Speaker 2: all of the data or heaps of the data through
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  Speaker 2: Q two was showing us that there was problem a problem.
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  Speaker 2: We've had such bad manufacturing numbers, we've had such bad
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  Speaker 2: consumer confidence numbers, and then they held in July. Is
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  Speaker 2: that can we explain that away? When this is the
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  Speaker 2: lot who are supposed to be you have their finger
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  Speaker 2: on the pulse of what's going on here.
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  Speaker 3: Yeah, well, I mean they have an out casting framework
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  Speaker 3: for working out where they think the economy is in time,
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  Speaker 3: and at that stage, it wasn't telling them that two
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  Speaker 3: two was going to be a minus zero point nine.
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  Speaker 3: It was probably telling them that we might have had
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  Speaker 3: a minus point one or something like that, so they
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  Speaker 3: embodied that into their forecast at the time. But you know,
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  Speaker 3: it's just to s end up being worse than that,
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  Speaker 3: So you know, it's one of those kind of Harry
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  Speaker 3: hindsight things, isn't it.
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  Speaker 2: Perhaps so, Kelly Listen, thanks very much, appreciate it. Kelly
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  Speaker 2: are called chief economists at Westpac.
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