NZ still has 'rock star economy', says HSBC economist

Construction boom helps, says Bloxham.

By Fiona Rotherham

April 9 (BusinessDesk) - HSBC chief economist Paul Bloxham, who coined the phrase 'rock star' to describe New Zealand's economic growth, says it's still a rock star despite lower dairy prices and slower growth in its major trading partners.

Mr Bloxham says a range of indicators show the New Zealand economy continues to be supported by a construction boom, with 15 out of 16 sectors that contribute to gross domestic product growth showing expansion over 2014. Overall GDP growth was also running at well above-trend at 3.5 percent year on year.

The New Zealand dollar has reached near parity with the Australian dollar for the first time in 42 years and there were some early signals that domestic price pressures are picking up. Mr Bloxham said that indicates the Reserve Bank is unlikely to cut rates this year, in contrast to current market pricing and despite New Zealand having much higher interest rates than the rest of the world.

'In contrast to current market pricing, which suggests the Reserve Bank is likely to cut rates by Q3 this year, we still think they are more likely to remain on hold," Mr Bloxham said.

The post-earthquake rebuild of the Canterbury region is still building and there is strong population growth supporting an upswing in Auckland residential construction.

The building boom is creating jobs with employment up 3.5 percent year on year which is boosting incomes and confidence, Mr Bloxham said.

Concern by kiwi policymakers about the high level of the NZ dollar and its impact on exporters was surprising, he said.

"Much of that data do not support these concerns. Growth is strong and broad-based. The exchange rate sensitive exports, such as manufactured goods and tourism services, are performing well despite the high currency," he said.

Mr Bloxham admitted the strong currency has been a key factor in the current low inflation below the bottom edge of the Reserve Bank's 1-to-3 percent target band. Inflation is expected to fall from the current 0.8 percent for the December quarter towards zero for the first quarter of this year due to the oil price fall. But this was good, not bad disinflation, he said.

Mr Bloxham forecasts domestic inflation will start to rise soon given the economy is still growing strongly and spare capacity is being absorbed. Earlier today the ANZ said more modest GDP growth of around 0.5 to 0.6 per cent will be seen in the first quarter compared to the previous one.


1 comment
Login in or Register to view & post comments