Latest / Best of Business / Paul Bloxham: HSBC chief economist ahead of tomorrow's expected cuts to the OCR

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Paul Bloxham: HSBC chief economist ahead of tomorrow's expected cuts to the OCR · Best of Business

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  Speaker 1: You're listening to a podcast from News Talk zed B.
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  Speaker 1: Follow this and our wide range of podcasts now on iHeartRadio.
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  Speaker 2: Paul Bloxham, AGSBC Chief Economists with us right now, Hey, Paul.
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  Speaker 3: Good A.
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  Speaker 2: So tomorrow, twenty five basis point cut. That's it, isn't it?
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  Speaker 3: I think so. I think they're going to cut by
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  Speaker 3: twenty five basis points tomorrow. I think the key thing
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  Speaker 3: to watch out for is what they have to say
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  Speaker 3: about it and where they're at. And I think they're
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  Speaker 3: going to still they're going to cut by twenty five
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  Speaker 3: and I think they're going to say that they will
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  Speaker 3: still leave the door open to the possibility that they
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  Speaker 3: might have to cut a little bit further yet. So
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  Speaker 3: I think it's still the case that they're focused on
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  Speaker 3: the weak growth story rather than worried about inflation pressures
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  Speaker 3: at this point, and so you know, leaving the door
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  Speaker 3: open trying to get the economy to get going, particularly
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  Speaker 3: ahead of you know, they've got a three month gap
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  Speaker 3: now until the next meeting until February, and of course
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  Speaker 3: a new governor that's arriving at the RBNST as well,
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  Speaker 3: so trying to get the economy to turn around ahead
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  Speaker 3: of that. I think that's what the aim will be.
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  Speaker 2: What are you expecting for the economy next year, Paul,
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  Speaker 2: because I know that we're I mean, I saw your
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  Speaker 2: last production, correct me if I'm wrong, was about two
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  Speaker 2: and a half percent or thereabouts, and the other banks
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  Speaker 2: are calling around about that as well, up to three percent.
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  Speaker 2: But the numbers that we're seeing in the data that
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  Speaker 2: we're seeing just makes you feel a bit nervous, doesn't it.
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  Speaker 3: Yeah, it does make me nervous. We do have a
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  Speaker 3: number which is a bit over two percent in terms
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  Speaker 3: of growth running into next twenty twenty six, and I
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  Speaker 3: think you know, the challenge has been that it has
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  Speaker 3: taken longer for growth to pick up than we expected.
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  Speaker 3: We expected this year might be a bit better than
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  Speaker 3: it was in the end, but it has been weaker.
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  Speaker 3: But I think the two key mechanisms are still there
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  Speaker 3: that should get things going. The first one is interest
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  Speaker 3: rates have come down a long way, and of course
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  Speaker 3: they've come down even further and as I say, likely
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  Speaker 3: to come down a bit further tomorrow again, and that
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  Speaker 3: should start to feed through to a bit more consumer
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  Speaker 3: spending and some support for the housing market as well.
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  Speaker 3: And the other one is that dairy and meat prices
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  Speaker 3: have been very high, so the agricultural sector has done
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  Speaker 3: very well and those payouts are starting to arrive and
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  Speaker 3: that income is starting to slosh into the economy. And
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  Speaker 3: although it's mostly in the South Island, I think some
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  Speaker 3: of it will start to feed through to the broader
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  Speaker 3: economy as we run through next year as well. I
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  Speaker 3: don't think this is a strong growth profile, but this
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  Speaker 3: is a recovery after too what will turn out to
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  Speaker 3: have been two quite weak years in terms of New
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  Speaker 3: Zealand's economic performance. So two years of economic weakness followed
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  Speaker 3: by a modest recovery is what we've got factored in
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  Speaker 3: to the story.
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  Speaker 2: Have you factored in the possibility that everything that's freeing
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  Speaker 2: up on account of the official cash rate coming down
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  Speaker 2: is simply being hoovered up by increasing rates, so actually
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  Speaker 2: you don't end up with that much disposable cash.
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  Speaker 3: I think this is still feeding through. I think the
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  Speaker 3: main thing that we've seen that's been quite slow is
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  Speaker 3: people fixing shifting off their fixed rate mortgages and rolling
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  Speaker 3: over those fixed rate mortgages to lower rates, and that's
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  Speaker 3: been one of the things that has slowed things down.
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  Speaker 3: I think you know, if you sort of look back
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  Speaker 3: and think about what else has held up the recovery,
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  Speaker 3: I mean, I think it's taken you know, the fact
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  Speaker 3: that you you had such a big housing cycle, house
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  Speaker 3: price cycle, you know, a forty five percent rise in
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  Speaker 3: house prices through the pandemic and then sort of an
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  Speaker 3: almost twenty percent decline in house prices, so a lot
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  Speaker 3: more I think people you know had bought in and
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  Speaker 3: are still facing house prices that are lower than when
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  Speaker 3: they purchased them. And I think that's probably been something
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  Speaker 3: that's that's been weighing on New Zealand more than we
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  Speaker 3: anticipated earlier in the year. So that's that's one of
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  Speaker 3: the features. And then as a consequence of the weaker economy,
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  Speaker 3: of course, you've seen this outward migration story, which is
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  Speaker 3: weighed on population growth. So there's quite a bit that
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  Speaker 3: has to turn around. But I think the big mechanisms
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  Speaker 3: for getting it to turn around are there. They're working,
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  Speaker 3: you know, with lower interest rates and as I say,
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  Speaker 3: high high, high commodity price.
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  Speaker 2: Yeah, I mean, I feel like I should clarify what
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  Speaker 2: I meant by rates was council rates, because obviously we
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  Speaker 2: could talk about any kind of rates, But I feel
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  Speaker 2: like that sucked up a heap of our disposable income.
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  Speaker 2: But I mean, you'll bang on. You know, the wealth
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  Speaker 2: effect will be part of it. So when you take
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  Speaker 2: everything into account, are you still sticking with your projection
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  Speaker 2: of two and a half?
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  Speaker 3: So I will have a bit over two percent running
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  Speaker 3: into next year. And as I say, I think the
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  Speaker 3: main way I'd characterize it is after having last year
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  Speaker 3: where growth GDP went backwards, and this year where on
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  Speaker 3: average it's not going to have grown very much at all.
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  Speaker 3: You know, if two years of weakness are followed by
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  Speaker 3: growth of a bit over two percent, that's you know,
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  Speaker 3: that's still that's that's just a modest recovery. When you
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  Speaker 3: think about it, it's not it's not it's not a
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  Speaker 3: strong picture. It's just a it's just a recovery.
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  Speaker 2: Yeah, brilliant. Hey listen, Paul, always brilliant to talk to you,
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  Speaker 2: and we'll talk to you again very shortly. That's Paul Bloxham,
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  Speaker 2: HSBC's chief economist.
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