Paul Bloxham, HSBC’s chief economist for Australia and New Zealand, has updated his views on the New Zealand economy, now its not just a rockstar economy … but it has staying power:
- That the New Zealand economy is “more likely to be a rockstar with staying power than a one hit wonder”
- But the Reserve Bank of New Zealand needs to increase the Official Cash Rate (OCR) to prevent the rockstar getting addicted to cheap credit
- Also said NZ needs to get used to a “structurally stronger” New Zealand dollar – but shouldn’t be too worried about our current account deficit
“OECD economies are still struggling after the GFC (global financial crisis), particularly the advanced world, and New Zealand is picking up pace … If you look across the range of OECD economies, the developed world economies, we think New Zealand will be up in the top four performers across the OECD economies this year. And that’s why we’ve been calling it the rockstar economy of 2014″
Says there are three key factors driving the New Zealand economy:
1. The “enormous” post-earthquake Canterbury rebuild:
RBNZ’s … estimates suggest that it’s going to be 20% of GDP. If you compare that to the size of the mining investment boom in Australia, it’s a similar sort of size. If you add up all the mining investment that has happened in the last eight years in Australia, it adds up to about 26% of GDP. So we’re talking about a rebuild story that’s almost as big as the mining investment boom, which has been a huge story for Australia. So you can say New Zealand is at the beginning of this whereas Australia is, of course, at the end of their mining investment boom”
2. Dairy prices:
“Dairy prices are at very high levels and that’s supporting rural incomes. the terms of trade’s at its highest level in 40 years, and we think those trends are going to be sustained. We think the demand for dairy products and meat products is going to be sustained as middle class incomes rise in China. That story has a lot of support and is going to persist in our view”
3. Low interest rates
“You have a housing boom and it’s not just happening in housing any more. You’re seeing that pick up in house prices is flowing through to consumer confidence, it’s flowing through to quite strong growth in retail sales. And you’d expect to see more of a pick up in consumption soon”
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But, Bloxham notes whats coming up soon:
“You wouldn’t want your rockstar economy to become addicted to low interest rates,” he said. “Interest rates will need to rise fairly soon and we’ve got in mind that they (the OCR) will rise by 100 basis points this year, and another 100 basis points in 2015.”
Bloxham didn’t say whether he expected the NZ economy to chuck TV’s in hotel swimming pools, but I’m sure that was just an oversight
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Another NZ rockstar:
