Economist tips rockstar revival
Lessons learnt during the global financial crisis mean New Zealand’s government finances are now in ‘‘stark contrast’’ to Australia, an economist says.
Paul Bloxham, HSBC’S Australia and New Zealand chief economist who in 2014 famously dubbed New Zealand a ‘‘rockstar economy’’, said the local economy is now firing on all cylinders.
The bank released research claiming New Zealand was ‘‘outperforming again’’ and would grow at a rate of 3 per cent in 2017.
While a migration boom had peaked, construction and tourism would enjoy strong demand.
Asked to compare the prospects of New Zealand and Australia, Bloxham said overall both economies were well positioned, tied to fast-growing countries in Asia.
The ‘‘stark difference’’ was in government accounts.
The New Zealand Government’s books are expected to be in surplus for the second year in a row in the year to June 30, while Australia continues with structural deficits, which are unlikely to return to end until 2021, Bloxham said.
‘‘I think [New Zealand] policymakers have done a very good job at taking advantage of the GFC, making reforms and they’re now seeing some of the pay-off in the form of already being in a budget surplus and having improved the flexibility in the New Zealand economy,’’ Bloxham told journalists yesterday. ‘‘Australia didn’t see that.’’
Despite the stronger fiscal position, Bloxham said relatively similar job markets on either side of the Tasman would mean the migration flows would return to more normal levels.
After the net loss to Australia topped 40,000 a year during 2011, New Zealand saw more than a year of net migration gains from Australia in 2016, the largest gain since the early 1990s.
‘‘We think that the inward migration story is past its peak,’’ Bloxham said. ‘‘We think that will mean less people moving across the Tasman to New Zealand.’’
Lower inward migration could help boost wage demands, sparking a return of inflation, he said.
While official figures due to be released tomorrow are expected to show that inflation hit 1.2 per cent at the end of 2016, the highest level in more than two years, Bloxham said it would take time to convince the Reserve Bank to raise the official cash rate (OCR) from 1.75 per cent.
In 2014, it raised the OCR progressively by 100 basis points to 3.5 per cent, amid concerns a strong economy would stoke inflation at a time when house prices were already rising strongly.
However, the Reserve Bank has since slashed the OCR to an alltime low of 1.75 per cent.
Bloxham said the experience of 2014 may make the Reserve Bank reluctant to move higher until the evidence of higher inflation was clear.