China provides economic lifeline amid global trading uncertainty
HSBC has revised up its global growth forecast for the first time in half a decade, citing newly minted US President Donald Trump as a major factor behind its optimistic outlook.
The bank is especially upbeat about New Zealand’s economic prospects this year, with its chief Australia and New Zealand economist Paul Bloxham saying the economy is “firing on all cylinders.”
Tourism and construction continue to be two of the major economic tailwinds while the dairy industry – where prices have risen substantially over the past six months – has very much come back into the mix.
Mr Bloxham is expecting strong, above-trend GDP growth of 3% this year.
He also says there is an expectation that under President Trump, the US will introduce waves of fiscal stimulus.
Mr Trump’s plans include tax cuts and government investment into infrastructure – a plan Mr Bloxham reckons will boost economic growth in the US.
“The broad way we have interpreted the Trump administration at this point is similar to what the market has interpreted it as; which is it will be positive for US growth and will bring higher inflation, which will mean the Federal Reserve will continue down its path of hiking interest rates.”
He calls it “Trumpflation” and says it will, in turn, push the US dollar higher and the New Zealand dollar lower.
But a lot remains unclear in terms of Mr Trump’s plans on US trade, Mr Bloxham says.
The new president signed an executive order that withdraws the US from TPP but has also indicated he plans to negotiate “one on one” trade deals with the TPP member nations, leaving the door open for New Zealand.
Trade with China a silver lining
But the protectionist rhetoric from Mr Trump should not be too worrying for New Zealand, Mr Bloxham says.
Small open economies like New Zealand’s are tied into many factors influencing global trade but, because of New Zealand’s tight economic relationship with China and other Asian countries, it is on a better footing than many other countries.
“More and more of China’s growth in recent years has been driven by its own domestic momentum and hasn’t been as much about exporting its goods and services to the rest of the world,” Mr Bloxham says.
China’s export share of GDP has fallen from a peak of 38%, down to about 20% in recent years.
The Middle Kingdom’s focus on domestic consumption and its rising middle class is good news for New Zealand, as demand for quality meat and milk, is projected to continue increasing, Mr Bloxham says.