Paul Bloxham, who coined the term “rock star economy” to described New Zealand has handed out his latest verdict – the economy is still booming and rocking on.
Here are the tell-tale signs: 15 of the economy's 16 sectors have been showing expansion over 2014; overall GDP has been running at a well above-trend pace of 3.5% y-o-y.
What’s pumping growth?
Bloxham’s who is chief economist at HSBC, adds in his latest economic commentary that business and consumer sentiment have bounced back, and are at levels that imply continued above-trend growth. This is after a period of moderation in the middle of last year (due to the Reserve Bank of NZ’s 100 basis point hike in interest rates).
What has been driving the economy? According to Bloxham, Auckland’s building boom and Canterbury’s rebuild have been the growth engines for domestic growth.
External growth drivers haven’t been great. NZ’s major trading partners (Australia, Japan, US and China) have been weakening. China, an increasingly crucial trading partner, has been seeing slower growth. The other dark spot for external demand is the drop in dairy prices, expected to impact payout for dairy farmers.
High dollar, no concern
The bottomline from Bloxham: “But when you add up the weaker external and strong domestic story, you still end up with an economy that is growing at an above-trend pace. We expect this to continue through 2015.”
The NZ dollar which has seen a 40-year record high against the Aussie, has been contributing to a low inflation rate, currently trending below the RBNZ’s one to three percent target band, and expected to fall near zero.
Bloxham disagrees with the Prime Minister John Key’s concerns of the NZ dollar’s strength and the impact on exporters.
“At this stage, however, much of the 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. In-bound tourism numbers recently hit a record high,” he says.
Good not bad disflation
Bloxham says the fall in inflation is good, not bad. “With GDP and employment growth above trend, low inflation is a bonus, as it also helps to improve living standards.”
In June however, expect the RBNZ to tighten grip on interest rates given the ramp up in Auckland housing prices.