Latest / Best of Business / Paul Bloxham: HSBC chief economist on Donald Trump's impact on the economy

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Paul Bloxham: HSBC chief economist on Donald Trump's impact on the economy · Best of Business

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  Speaker 1: You're listening to a podcast from News Talk sed B.
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  Speaker 1: Follow this and our wide range of podcasts now on iHeartRadio.
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  Speaker 2: Right now, though it is time for Well, he's the
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  Speaker 2: most famous economist on this program. I'll say that, for
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  Speaker 2: sure New Zealand is desperate for an economic recovery. But
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  Speaker 2: with international market wobbles and fears of a Trump session,
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  Speaker 2: which is a Trump induced recession, I'm told in the US,
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  Speaker 2: how vulnerable are we and should we temper our expectations.
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  Speaker 2: Paul Bloxham is HSBC's chief economists. He's in the country
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  Speaker 2: from Sydney. It's great to have you in the studio, Paul.
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  Speaker 2: Good evening, great to be here. Do you how obsessed
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  Speaker 2: are you with following what Trump is saying? Every day?
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  Speaker 3: It is my day job to keep up with what
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  Speaker 3: is going on, and it is certainly fast paced, to
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  Speaker 3: say the least. I get actually quite a few clients.
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  Speaker 3: I do lots of presentations and I've been doing them
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  Speaker 3: here this week as well. And they say, you know,
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  Speaker 3: it must be tough to be an economist because there's
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  Speaker 3: so many moving parts and so much happening. And I say,
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  Speaker 3: because I'm a contry, And of course I say No,
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  Speaker 3: it's a great time to be an economist because there's
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  Speaker 3: such a so much going on, and if anything, the
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  Speaker 3: economics framework is surely like one of the ones that
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  Speaker 3: you've got to use to fit the facts together to
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  Speaker 3: make some sense of how it goes so and how
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  Speaker 3: and what you should think about it.
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  Speaker 2: And so it's kept me busy. All right, Well synthesize
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  Speaker 2: it for us? Then is the answer here? Basically, there
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  Speaker 2: is so much going on that it's all equals uncertainty,
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  Speaker 2: and uncertainty is bad.
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  Speaker 3: There's an element of that story. Certainly, when things chop
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  Speaker 3: and change a lot, it's difficult for businesses to be
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  Speaker 3: able to know which way to move are they going
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  Speaker 3: to you know, where are they going to invest? Where
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  Speaker 3: are they going to hire? And I think you're starting
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  Speaker 3: to see that in some of the business surveys, you know.
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  Speaker 3: So that's one aspect of this story. But there's a
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  Speaker 3: lot of elements to what's being delivered. There's a trade
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  Speaker 3: policy element that's the one that gets all the attention,
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  Speaker 3: which is sort of trade tariffs and what's been happening
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  Speaker 3: with those, But there's also others. There's the deregulation story
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  Speaker 3: and tax cuts that they're proposing as well, so you
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  Speaker 3: sort of have to balance out all of the bits
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  Speaker 3: of the overall story. I think net we're looking at.
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  Speaker 3: You know that there's upside risk to US inflation, and
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  Speaker 3: that's something we need to think about in terms of
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  Speaker 3: global interest rates and what it means, and the US
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  Speaker 3: dolar which has remained strong. And I think there is
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  Speaker 3: some risk to US growth from all of this. But
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  Speaker 3: the major thing is it has a flow on effect
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  Speaker 3: to the rest of the world. So the risk overall
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  Speaker 3: to the global economy is probably tilted to the downside.
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  Speaker 3: So those are the ways, at least some guideposts for
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  Speaker 3: thinking about what's going on. I think, of course here
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  Speaker 3: in New Zealand, you want to think about what it
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  Speaker 3: means for New Zealand, Well, you know, I think the
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  Speaker 3: direct impact is actually fairly small in the scheme of things,
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  Speaker 3: the trading relationships fairly small. New Zealand sells a lot
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  Speaker 3: more into the Asian markets and so on, and so
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  Speaker 3: I think it's a fairly small effect overall, but it's
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  Speaker 3: not insignificant. But I actually think New Zealand's doing a
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  Speaker 3: little bit better. I mean, I think this year you're
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  Speaker 3: going to see an upswing in the New Zealand economy.
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  Speaker 2: I think, well, I think that's what everyone's worried about,
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  Speaker 2: is we all feel the same way, but we're worried
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  Speaker 2: someone's going to come and eat our lunch. You know,
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  Speaker 2: there's going to be a Donald Trump shaped bite out
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  Speaker 2: of our sandwich that we were expecting to eag this yet.
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  Speaker 3: So I think you've got a couple of things going
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  Speaker 3: for you. So so one of them is, of course,
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  Speaker 3: that inflations come down enough now that the rbnz's cutting
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  Speaker 3: interest rates, and not just by a little bit, they've
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  Speaker 3: cut interest rates already by one hundred and seventy five
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  Speaker 3: basis points. That's quite a lot of stimulus that's starting
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  Speaker 3: to pour into the New Zealand economy. I think you're
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  Speaker 3: seeing that showing up in surveys, consumer sentiment surveys and
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  Speaker 3: so on. So that's one tailwind. And the other tailwind
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  Speaker 3: you've got is that well, dairy prices have risen, meat
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  Speaker 3: prices are elevated, you've got more volumes, Your terms of
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  Speaker 3: trade is positive, so you're going to get a national
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  Speaker 3: income tailwind from that story. And both of those things
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  Speaker 3: we think will lift growth after a pretty tough year
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  Speaker 3: last year in terms of you know, the economy contracting,
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  Speaker 3: I think you're going to get quite a decent bounce
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  Speaker 3: back through this year, pretty strong bounce back if you
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  Speaker 3: look at it through the year. And so those things
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  Speaker 3: are at work, and as you say, I guess there's
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  Speaker 3: risks out there from the global story. But one of
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  Speaker 3: the things to keep in mind is you're tied to
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  Speaker 3: the China story a lot, and China is not able.
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  Speaker 3: China's story is pivoting more towards the consumer. So instead
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  Speaker 3: of being as driven by metals intensive activities like building
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  Speaker 3: factories and building property, they can't do as much of that.
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  Speaker 3: They've already done a lot of that, but they're pivoting
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  Speaker 3: their own stimulus measure towards the consumer. If the Chinese
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  Speaker 3: consumer picks up, which is part of what we think
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  Speaker 3: is likely, then that's actually a positive for New Zealand's
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  Speaker 3: there's a few tail winds here.
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  Speaker 2: You talk about the Reserve Bank and you've been at
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  Speaker 2: this conference in Wellington last week where all the nerds
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  Speaker 2: from central banks around the world went and had a
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  Speaker 2: little chat. What did you do what survive? You picked
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  Speaker 2: up there about Adrian or I mean, was this quite
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  Speaker 2: a shock for people in the money economy world.
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  Speaker 3: I'd think that everyone was shocked by what happened. I
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  Speaker 3: think that's a reasonable surmise. I think the conference was
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  Speaker 3: very focused on a celebration in a way of the
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  Speaker 3: fact that this is the central bank, the RBNZ, the
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  Speaker 3: first central bank to have adopted inflation targeting. They did
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  Speaker 3: that thirty five years ago. And I know your audience
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  Speaker 3: will say, well, it's inflation targeting. How good's it been. Actually,
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  Speaker 3: it's been a really robust system for being able to
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  Speaker 3: manage cycles and economies. And not only has it worked
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  Speaker 3: well here, but it's been in New Zealand led the way.
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  Speaker 3: The RBNZ was the first central bank to do it,
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  Speaker 3: and then the other central banks around the world have
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  Speaker 3: all adopted the similar sorts of strategies, including the RBA
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  Speaker 3: and the Federal Reserve and the Bank of England, and
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  Speaker 3: so you know, New Zealand was where where all this started.
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  Speaker 3: It's it's actually it's the best, the best system available
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  Speaker 3: for central banks to manage economies. It's not perfect, and
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  Speaker 3: you can learn a lot still, but it's it's it's
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  Speaker 3: the way that central banks go about it. So I
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  Speaker 3: think that's a lot of what the conference was really
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  Speaker 3: about was sort of going and looking at how well
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  Speaker 3: it's performed and how how central bankers can do it
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  Speaker 3: better in the future.
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  Speaker 2: One of the things you're one of the biggest complaints
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  Speaker 2: you get about this targeting of manet the way monetary
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  Speaker 2: policy operates, is that you're taking money away. You're taking
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  Speaker 2: money out of people's pockets to try and dampen down,
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  Speaker 2: you know, demand, and try and have an effect on inflation,
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  Speaker 2: and that money just of disappears, you know, Like there
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  Speaker 2: are people who say, oh, why don't we have a
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  Speaker 2: different system where that money would be put into some
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  Speaker 2: kind of savings vehicle or something rather than just sort
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  Speaker 2: of arbitrarily disappearing into the ethos when the Reserve bankups
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  Speaker 2: the ocr Well.
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  Speaker 3: There are a number of reasons. I mean, the first
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  Speaker 3: one is you're absolutely right to describe it as you're
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  Speaker 3: lifting and lowering. I might add there've been lowering interest
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  Speaker 3: rates recently, so actually what they're doing is actually allowing
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  Speaker 3: people more income to spend. They're trying to get the
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  Speaker 3: economy to pick up because inflation has come down, but
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  Speaker 3: you are setting a policy rate to try to manage
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  Speaker 3: the cycles in demand. If demand's picking up too much,
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  Speaker 3: you're slowing it down by lifting rates. And likewise, if
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  Speaker 3: demand has slowed too much, you start to lower interest rates,
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  Speaker 3: and you guide that by looking at the inflation rate,
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  Speaker 3: which balances that out. You're right absolutely that this is
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  Speaker 3: not the only way you could do things. You could
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  Speaker 3: actually use your fiscal policy tools. You could set taxes
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  Speaker 3: and spending by government and so on, and try and
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  Speaker 3: compliment what you do in terms of managing that cycle.
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  Speaker 3: It doesn't have to just be that you'd use monetary policy.
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  Speaker 3: But the way we've gravitated, we've gravitated to a system
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  Speaker 3: whereby the central bank is independent and it sets policy
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  Speaker 3: to try and manage that cycle, because well, fiscal policy
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  Speaker 3: doesn't always end up being set in a way that
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  Speaker 3: manages the cycle as effectively. So that's the system we have,
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  Speaker 3: and it works. It's not perfect, as I said, but
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  Speaker 3: it works. It works fairly well. And this was the
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  Speaker 3: first country to have adopted this system that every you know,
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  Speaker 3: all the other countries around the world have effectively moved
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  Speaker 3: towards over time.
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  Speaker 2: I'm not sure it's something we're ready to sing and
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  Speaker 2: celebrate about just at the moment, only because we've been
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  Speaker 2: recently scarred.
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  Speaker 3: That's true, I know, but it's worth keeping in mind
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  Speaker 3: that interest rates are now coming down exactly, and they're
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  Speaker 3: probably going to come down a bit further yet, and
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  Speaker 3: that's going to start to stimulate. That is already starting
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  Speaker 3: to stimulate the economy into an upswing, and that's a positive.
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  Speaker 3: Inflation was the major problem. Inflation's come down now it's
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  Speaker 3: sitting around the midpoint of the rbnz's target band, so
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  Speaker 3: they've been able to lower interest rates and start to
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  Speaker 3: stimulate the economy.
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  Speaker 2: Paul, thank you very much for coming in. Great to
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  Speaker 2: see you. Thank you. Paul Bloxhom, HSBC GP economist with
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  Speaker 2: us in the studio.
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