00:00:00
Speaker 1: With us right now, we have Paul Bloxham, HSBC's chief economist. Hi, Paul.
00:00:04
Speaker 2: G'day.
00:00:05
Speaker 1: Paul, I'm interested in your take on the headline that I saw in the papers today here in New Zealand, which is basically that the Australian dream is fading. What do you make of that?
00:00:14
Speaker 3: Oh, I think that we've got some pretty big challenges at the moment over here in Australia. And I think, you know, what that is a reference to is that disposable incomes in Australia on a per capita basis haven't been rising in the past few years.
00:00:28
Speaker 2: We We've talked about this, you and I, quite a lot.
00:00:30
Speaker 3: It's a manifestation of having very weak productivity growth that we just haven't had a lift in our incomes on a per capita basis. So I think that it is a more challenging spot than Australia has been in quite some time. And I think that's what that sort of reference is pointing to. In the big intergenerational report that the government published a couple of weeks ago, they showed that people who were born in the 90s are now the first generation in quite a few which are on a lower track for their income in their lifetime than the previous people born in the 80s and the 70s and the 60s and the 50s. And so we can see clear evidence that income growth has slowed down a lot.
00:01:13
Speaker 1: But so why would they be on a lower track than somebody in the workforce existing? Why are they going to end up being paid less?
00:01:21
Speaker 2: Well, we've got less productivity.
00:01:22
Speaker 3: The economy is not having the same sort of productivity growth that we've had in the past. And so we're not able to lift, their incomes are not rising as much as previous generations. And so we're just not keeping up. They're not on the same pathway of the previous generations. And a lot of that comes down to, as I say, productivity growth that's weak. And I guess the way I see it is Australia has got a lot of growth opportunities. We're a huge continent, big resource base tied to Asia. But the challenges are being created by our own tax system, which is inefficient, by our own regulatory environment, which is constraining investment decisions by a lack of competition in the economy. And we're seeing that reflected in less investment and less innovation by businesses. And that, in turn, is leaving us with an economy that just has very low productivity growth.
00:02:10
Speaker 2: And so.
00:02:11
Speaker 3: you know, if you can't grow the pie, then it's, you know, there's less pie to share around, as it were, in terms of.
00:02:18
Speaker 2: The overall economy.
00:02:19
Speaker 1: I mean, obviously, our two economies are at different parts of the cycle, right? We're coming out of the recession, you guys are heading into yours. Even then, though, your numbers are still better than ours. I mean, your unemployment is sort of in the late fours, ours is in the fives. At what point do you think our economy overtakes the Australian economy?
00:02:37
Speaker 2: Well, I think on the growth figures, it's going to be this year.
00:02:39
Speaker 3: I think on the growth figures, we're already seeing an upswing in New Zealand that is underway and the growth figures have strengthened. And in Australia, you're seeing the growth numbers have slowed down, I think. So this year, I think you're going to see that growth in New Zealand outpaces Australia. And that'll be the first year in quite some time where that's happened. But that's going to be the case. And then you're describing what's happening in the labour market.
00:03:02
Speaker 2: You're right.
00:03:03
Speaker 3: You know, employment growth is actually picking up in New Zealand and it's slowing down in Australia.
00:03:08
Speaker 2: And what that will.
00:03:09
Speaker 3: Mean is that the unemployment rate in Australia is on a rising trajectory.
00:03:13
Speaker 2: It's rising. Yes, it's lower at the moment still than New Zealand's, but it's rising.
00:03:17
Speaker 3: And in New Zealand, we expect that the improvement you're seeing at the moment is going to start to feed through to an unemployment rate that peaks and starts to fall soon. But the labour market, the unemployment rate tends to lag the overall cycle. So what is happening already in the growth figures is will show up in things like the unemployment rate in the coming quarters.
00:03:35
Speaker 1: Now, on the Reserve Bank, we've obviously got the big Reserve Bank decision on the OCR next week. How much of their minds do you think have already been made up? How much are they waiting for the inflation number this week?
00:03:46
Speaker 3: I think that it's fairly clear that interest rates still need to keep climbing in New Zealand. And that's partly because the cash rate is still below neutral. It's still reasonably, you know, a reasonable distance below neutral. the economy's in an economic upswing and inflation is still, is above target. Now, the print we get later this week will, we think, likely confirm that inflation's above target. And so I don't think that's going to be the decisive factor as to whether they lift interest rates or not. But of course, the magnitude of it could matter in terms of the sort of message they deliver, whether, you know, this is, a hike and there's going to be more to come or whether, you know, whether there's a lot more to come. That's what this inflation print is going to determine, less so whether they lift rates, but rather whether there are more rate, you know, how many more rate hikes there are to come.
00:04:35
Speaker 2: Yeah, fair point.
00:04:35
Speaker 1: Paul, always good to talk to you, mate. You look after yourself. Paul Bloxham, HSBC Chief Economist.
Speaker 1: With us right now, we have Paul Bloxham, HSBC's chief economist. Hi, Paul.
00:00:04
Speaker 2: G'day.
00:00:05
Speaker 1: Paul, I'm interested in your take on the headline that I saw in the papers today here in New Zealand, which is basically that the Australian dream is fading. What do you make of that?
00:00:14
Speaker 3: Oh, I think that we've got some pretty big challenges at the moment over here in Australia. And I think, you know, what that is a reference to is that disposable incomes in Australia on a per capita basis haven't been rising in the past few years.
00:00:28
Speaker 2: We We've talked about this, you and I, quite a lot.
00:00:30
Speaker 3: It's a manifestation of having very weak productivity growth that we just haven't had a lift in our incomes on a per capita basis. So I think that it is a more challenging spot than Australia has been in quite some time. And I think that's what that sort of reference is pointing to. In the big intergenerational report that the government published a couple of weeks ago, they showed that people who were born in the 90s are now the first generation in quite a few which are on a lower track for their income in their lifetime than the previous people born in the 80s and the 70s and the 60s and the 50s. And so we can see clear evidence that income growth has slowed down a lot.
00:01:13
Speaker 1: But so why would they be on a lower track than somebody in the workforce existing? Why are they going to end up being paid less?
00:01:21
Speaker 2: Well, we've got less productivity.
00:01:22
Speaker 3: The economy is not having the same sort of productivity growth that we've had in the past. And so we're not able to lift, their incomes are not rising as much as previous generations. And so we're just not keeping up. They're not on the same pathway of the previous generations. And a lot of that comes down to, as I say, productivity growth that's weak. And I guess the way I see it is Australia has got a lot of growth opportunities. We're a huge continent, big resource base tied to Asia. But the challenges are being created by our own tax system, which is inefficient, by our own regulatory environment, which is constraining investment decisions by a lack of competition in the economy. And we're seeing that reflected in less investment and less innovation by businesses. And that, in turn, is leaving us with an economy that just has very low productivity growth.
00:02:10
Speaker 2: And so.
00:02:11
Speaker 3: you know, if you can't grow the pie, then it's, you know, there's less pie to share around, as it were, in terms of.
00:02:18
Speaker 2: The overall economy.
00:02:19
Speaker 1: I mean, obviously, our two economies are at different parts of the cycle, right? We're coming out of the recession, you guys are heading into yours. Even then, though, your numbers are still better than ours. I mean, your unemployment is sort of in the late fours, ours is in the fives. At what point do you think our economy overtakes the Australian economy?
00:02:37
Speaker 2: Well, I think on the growth figures, it's going to be this year.
00:02:39
Speaker 3: I think on the growth figures, we're already seeing an upswing in New Zealand that is underway and the growth figures have strengthened. And in Australia, you're seeing the growth numbers have slowed down, I think. So this year, I think you're going to see that growth in New Zealand outpaces Australia. And that'll be the first year in quite some time where that's happened. But that's going to be the case. And then you're describing what's happening in the labour market.
00:03:02
Speaker 2: You're right.
00:03:03
Speaker 3: You know, employment growth is actually picking up in New Zealand and it's slowing down in Australia.
00:03:08
Speaker 2: And what that will.
00:03:09
Speaker 3: Mean is that the unemployment rate in Australia is on a rising trajectory.
00:03:13
Speaker 2: It's rising. Yes, it's lower at the moment still than New Zealand's, but it's rising.
00:03:17
Speaker 3: And in New Zealand, we expect that the improvement you're seeing at the moment is going to start to feed through to an unemployment rate that peaks and starts to fall soon. But the labour market, the unemployment rate tends to lag the overall cycle. So what is happening already in the growth figures is will show up in things like the unemployment rate in the coming quarters.
00:03:35
Speaker 1: Now, on the Reserve Bank, we've obviously got the big Reserve Bank decision on the OCR next week. How much of their minds do you think have already been made up? How much are they waiting for the inflation number this week?
00:03:46
Speaker 3: I think that it's fairly clear that interest rates still need to keep climbing in New Zealand. And that's partly because the cash rate is still below neutral. It's still reasonably, you know, a reasonable distance below neutral. the economy's in an economic upswing and inflation is still, is above target. Now, the print we get later this week will, we think, likely confirm that inflation's above target. And so I don't think that's going to be the decisive factor as to whether they lift interest rates or not. But of course, the magnitude of it could matter in terms of the sort of message they deliver, whether, you know, this is, a hike and there's going to be more to come or whether, you know, whether there's a lot more to come. That's what this inflation print is going to determine, less so whether they lift rates, but rather whether there are more rate, you know, how many more rate hikes there are to come.
00:04:35
Speaker 2: Yeah, fair point.
00:04:35
Speaker 1: Paul, always good to talk to you, mate. You look after yourself. Paul Bloxham, HSBC Chief Economist.
