Latest / The SME Stream / Paul Bloxham: HSBC chief economist on the predicted GDP growth for 2026

Transcript

Paul Bloxham: HSBC chief economist on the predicted GDP growth for 2026 · The SME Stream

• 0:00
  Speaker 1: Bryan Bridge.
• 0:02
  Speaker 2: Never mind the old cautious talk about green shoots. Confidence
• 0:05
  Speaker 2: is back in our economist predictions for the year ahead,
• 0:08
  Speaker 2: which is a great thing. HSBC predicting above trend GDP
• 0:11
  Speaker 2: growth two and a half percent this year. This is
• 0:13
  Speaker 2: up from a very weak point four last year. There
• 0:16
  Speaker 2: is a warning though an election year, politicians should be
• 0:18
  Speaker 2: focusing on pro growth economic reform to lift productivity. Paul
• 0:22
  Speaker 2: Bloxham is HSBC's chief economist. With me now, Paul, good, evening, Good,
• 0:28
  Speaker 2: Why are you so confident about our economic recovery? Well,
• 0:31
  Speaker 2: I mean it's underway. We've seen the PMI, we've seen
• 0:33
  Speaker 2: the PSI, so the ingredients are there.
• 0:36
  Speaker 1: That's right. Well, so you've got quite a few of
• 0:38
  Speaker 1: the ingredients.
• 0:39
  Speaker 3: I mean the ingredients we think are primarily that all
• 0:42
  Speaker 3: interest rates have come down a long way, and so
• 0:44
  Speaker 3: monetary conditions are quite loose and below neutral and mid
• 0:48
  Speaker 3: blow neutral cash rates setting from the RBNZ and that
• 0:51
  Speaker 3: should provide some support. I think it already is, and
• 0:54
  Speaker 3: that's partly reflecting in the PMIS and the cop and
• 0:56
  Speaker 3: consumer and business confidence. Consumer spendings picked up a bit,
• 1:00
  Speaker 3: so that's part of it. And then the other part
• 1:02
  Speaker 3: of the story is that well, dairy and meat prices
• 1:05
  Speaker 3: have are still fairly high. Dry price have come off
• 1:07
  Speaker 3: their peaks, but they're still quite high relative to history.
• 1:10
  Speaker 3: So we've seen quite a large boost of rural incomes.
• 1:12
  Speaker 3: And the first step had been that the rural sector
• 1:15
  Speaker 3: seemed to be using a lot of that to pay
• 1:16
  Speaker 3: down debt, and it of course had more of a
• 1:18
  Speaker 3: supporting effect in the South Island.
• 1:20
  Speaker 1: But we think that this year we're going.
• 1:22
  Speaker 3: To start to see more of it spread through the
• 1:24
  Speaker 3: broader economy. Is the farm sector boost income starts to
• 1:28
  Speaker 3: spit through to other parts of the country as well,
• 1:30
  Speaker 3: and that's typically how it works.
• 1:31
  Speaker 1: It usually takes it's usually got a lag.
• 1:33
  Speaker 3: That lag might have been a bit longer this time around,
• 1:35
  Speaker 3: But we think those two are the big forces that
• 1:38
  Speaker 3: are likely to be driving the recovery that, as you say,
• 1:40
  Speaker 3: is starting to show signs of arriving already and is
• 1:43
  Speaker 3: likely to leave lift growth. And finally, I mean you've
• 1:47
  Speaker 3: had a couple of years of really weak growth in
• 1:50
  Speaker 3: New Zealand, you'd say almost three years actually of really
• 1:53
  Speaker 3: weak conditions, and finally you're starting to get an upswing
• 1:57
  Speaker 3: in growth.
• 1:58
  Speaker 1: In fact, you know.
• 1:58
  Speaker 3: One of the other things to point out is that
• 2:00
  Speaker 3: if you do get two and a half percent growth,
• 2:02
  Speaker 3: which is our forecast, we're sort of the top edge
• 2:04
  Speaker 3: of consensus, you'd be outpacing the growth across the Tasman.
• 2:07
  Speaker 1: I don't think Australia is going to be able to
• 2:09
  Speaker 1: grow that fast.
• 2:09
  Speaker 3: In fact, I think Australia can't grow really much faster
• 2:12
  Speaker 3: than it's growing already, which is just a bit over
• 2:14
  Speaker 3: two percent. And so New Zealand might very well outperform
• 2:18
  Speaker 3: Australia this particular this year.
• 2:20
  Speaker 2: Yeah, it's about time too. We've got a lot of
• 2:23
  Speaker 2: making up to do. Of course. Now what about the
• 2:26
  Speaker 2: tea word, you know, the tariffs and Trump because he's
• 2:30
  Speaker 2: markets haven't reacted, you know Greenland for example, he's troying
• 2:33
  Speaker 2: tariffs around. Markets haven't reacted in the same way that
• 2:36
  Speaker 2: they might have reacted twelve months ago. Have we kind
• 2:38
  Speaker 2: of learned to listen from that and are we there
• 2:41
  Speaker 2: for less concerned about a disruption on that front.
• 2:46
  Speaker 1: Well, I think there's a lot in that and it's
• 2:48
  Speaker 1: a big question.
• 2:49
  Speaker 3: I mean, I think if you look back over the
• 2:50
  Speaker 3: past year, the experience last year, the tariff effect wasn't
• 2:56
  Speaker 3: as large as was expected. That was partly because actually
• 2:58
  Speaker 3: in the end, the tariffs weren't as high. In the end,
• 3:02
  Speaker 3: we also saw that, you know, the story, the story
• 3:07
  Speaker 3: was still quite well supported by a lot of other
• 3:09
  Speaker 3: factors like the AI expansion and the data center investment story,
• 3:13
  Speaker 3: and that kept global truth trade holding up pretty well.
• 3:16
  Speaker 3: Now we expect as we've run through this year that
• 3:19
  Speaker 3: that's going to be the primary a key source of
• 3:22
  Speaker 3: growth too. Where reasonably positive on global growth this year,
• 3:25
  Speaker 3: But you have to keep in mind that there's it
• 3:28
  Speaker 3: could play out differently. It depends on what happens with
• 3:31
  Speaker 3: the tariffs. It depends on how these geopolitical developments we're
• 3:34
  Speaker 3: watching right now do play out. Markets, as you say,
• 3:37
  Speaker 3: have responded so far with a sense that you know,
• 3:40
  Speaker 3: things won't you know, things are still okay, and then
• 3:44
  Speaker 3: the markets have discounted all a lot of the bad news.
• 3:47
  Speaker 3: But it's you know, there's still a risk there that
• 3:49
  Speaker 3: we need to watch quite carefully.
• 3:51
  Speaker 2: When do we start feeling it? This is the big
• 3:53
  Speaker 2: political Christian heading into an election year. You know, it's
• 3:56
  Speaker 2: one thing to talk about it, When do people feel it?
• 4:00
  Speaker 3: I think one of the big things will be the
• 4:01
  Speaker 3: labor market turning around, and so the pick up in confidence,
• 4:05
  Speaker 3: the improvement and conditions, the fact that the business sector
• 4:08
  Speaker 3: is starting to look better and the consumers are starting
• 4:10
  Speaker 3: to spend a bit more. When that actually starts to
• 4:12
  Speaker 3: feed through to firms starting to do more hiring and
• 4:16
  Speaker 3: the labor markets starting to improve, and that then creating
• 4:19
  Speaker 3: enough jobs that it starts to put down with pressure,
• 4:21
  Speaker 3: we get to start to see the unemployment rate coming down.
• 4:24
  Speaker 3: That also might start to see fewer people leaving and
• 4:27
  Speaker 3: more people coming back from Australia as well, which has
• 4:29
  Speaker 3: been a feature of the story of the past couple
• 4:31
  Speaker 3: of years.
• 4:32
  Speaker 1: But I think the turning in the.
• 4:34
  Speaker 3: Labor market is going to be one of the main
• 4:36
  Speaker 3: things that's going to make it start to feel a
• 4:38
  Speaker 3: bit better. I think another thing to point to would
• 4:40
  Speaker 3: be when we start to see the housing market improve.
• 4:43
  Speaker 1: A bit more.
• 4:44
  Speaker 3: You know, New Zealand's had a very weak housing market
• 4:47
  Speaker 3: for the past couple of years, but I think once
• 4:49
  Speaker 3: the labor market turns, that will also support some a
• 4:52
  Speaker 3: bit of an upswing in the housing market. That combination
• 4:55
  Speaker 3: will get things going and we're expecting that to play
• 4:58
  Speaker 3: out through the year.
• 4:59
  Speaker 2: When you say the Australian economy can't grow or sort
• 5:02
  Speaker 2: of tapping out it two percent. What's holding it back?
• 5:06
  Speaker 1: Well, it's already operating it near its capacity, I mean.
• 5:10
  Speaker 3: And so a part of that story is that we
• 5:12
  Speaker 3: didn't have as big an economic downturn after the pandemic.
• 5:16
  Speaker 3: So if you think back to the story, inflation surged
• 5:19
  Speaker 3: after the pandemic and central banks lifted interest rates to
• 5:22
  Speaker 3: slow their economies down, and in New Zealand's case, the.
• 5:25
  Speaker 1: Economy slowed down a lot.
• 5:27
  Speaker 3: You barely had any growth for two and a half years,
• 5:29
  Speaker 3: and that's been left you with a lot of spare capacity.
• 5:32
  Speaker 3: So that now that you're in an economic ups when
• 5:33
  Speaker 3: you've got capacity to draw back in and get the
• 5:36
  Speaker 3: economy going and grow a bit faster. In Australia's case,
• 5:39
  Speaker 3: the economy the RBA didn't lift interest rates as much,
• 5:42
  Speaker 3: the economy didn't slow as much, and as a result
• 5:44
  Speaker 3: of that, even a bit of an upswinging growth which
• 5:47
  Speaker 3: we saw through last year has been enough to absorb
• 5:50
  Speaker 3: that spare capacity and get us back to operating at
• 5:53
  Speaker 3: full capacity. We're operating at full employment, so the economy
• 5:57
  Speaker 3: doesn't seem to be able to grow any faster than
• 6:00
  Speaker 3: this sort of two percent rate that we're running out
• 6:02
  Speaker 3: at the moment. And what that's going to mean, I think,
• 6:04
  Speaker 3: you know, at least our Australian view is that the
• 6:06
  Speaker 3: RBA will probably have to start lifting interest rates this
• 6:09
  Speaker 3: year to lean into it, because we are already operating
• 6:12
  Speaker 3: out our capacity. But what it also means is that
• 6:15
  Speaker 3: that run rate, that potential growth rate we're seeing, the
• 6:17
  Speaker 3: two percent, is not particularly impressive. We need to focus
• 6:20
  Speaker 3: a lot more on doing reform to lift productivity and
• 6:23
  Speaker 3: allow us to be able to maybe grow a bit
• 6:25
  Speaker 3: faster and lift living standards more.
• 6:26
  Speaker 2: Productivity obviously a big, well bigger problem for us than
• 6:30
  Speaker 2: it is for you though, right given the state of
• 6:34
  Speaker 2: our of our wages you know, still tracking thirty forty
• 6:39
  Speaker 2: percent behind Australia. What you know, when it comes to
• 6:42
  Speaker 2: politics election year, what should they be saying to us
• 6:46
  Speaker 2: to actually fix that?
• 6:49
  Speaker 3: Well, I think productivity, you've got to think about levels
• 6:52
  Speaker 3: and changes. And I know this is getting into a
• 6:54
  Speaker 3: lot of detail, but yes, the level of productivity in
• 6:56
  Speaker 3: New Zealand is lower than Australia's. That's true, but both
• 7:00
  Speaker 3: countries have had really quite sluggish growth in productivity Australia's
• 7:04
  Speaker 3: productivity growth has stalled in recent years. So you know,
• 7:07
  Speaker 3: to that point, both countries need to focus on reform
• 7:11
  Speaker 3: agendas pro growth reform agendas that will help to support growth.
• 7:15
  Speaker 3: And you know, a part of that is a continued
• 7:18
  Speaker 3: focus on improving the tax system in both countries, in
• 7:20
  Speaker 3: Australia and New Zealand, and a lot of the story
• 7:24
  Speaker 3: is also to focus on trying to get investment in
• 7:27
  Speaker 3: areas where exports can grow more, where we can sell
• 7:30
  Speaker 3: more into the global into the global economy in Australia's case,
• 7:33
  Speaker 3: attracting more investment into critical minerals and potentially services exports
• 7:39
  Speaker 3: and those areas in New Zealand's case obviously supporting the
• 7:42
  Speaker 3: ongoing dairy meat agricultural farming story, but also other areas
• 7:47
  Speaker 3: like technology we're seeing you know, we're seeing more investment
• 7:50
  Speaker 3: in technology and AI and so on, and those sorts
• 7:53
  Speaker 3: of exports are I think an increasing area where both
• 7:56
  Speaker 3: countries have some opportunities if we can grasp them.
• 7:59
  Speaker 2: Always good check, appreciate your time. Paul Blockhom Chief Economist HSBC.
• 8:03
  Speaker 2: For more from Hither Duplessy Allen Drive, listen live to
• 8:07
  Speaker 2: news talks it'd be from four pm weekdays, Or follow
• 8:10
  Speaker 2: the podcast on iHeartRadio