January 20, 2026 • 8 mins
The new year is well and truly under way, and there's growing hopeful predictions about the state of the economy.
GDP is projected to grow by 2.5 percent, according to new reports from HSBC.
HSBC chief economist Paul Bloxham explained further.
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Speaker 1 (00:00):
Bryan Bridge.
Speaker 2 (00:02):
Never mind the old cautious talk about green shoots. Confidence
is back in our economist predictions for the year ahead,
which is a great thing. HSBC predicting above trend GDP
growth two and a half percent this year. This is
up from a very weak point four last year. There
is a warning though an election year, politicians should be
focusing on pro growth economic reform to lift productivity. Paul
(00:22):
Bloxham is HSBC's chief economist. With me now, Paul, good, evening, Good,
Why are you so confident about our economic recovery? Well,
I mean it's underway. We've seen the PMI, we've seen
the PSI, so the ingredients are there.
Speaker 1 (00:36):
That's right. Well, so you've got quite a few of
the ingredients.
Speaker 3 (00:39):
I mean the ingredients we think are primarily that all
interest rates have come down a long way, and so
monetary conditions are quite loose and below neutral and mid
blow neutral cash rates setting from the RBNZ and that
should provide some support. I think it already is, and
that's partly reflecting in the PMIS and the cop and
consumer and business confidence. Consumer spendings picked up a bit,
(01:00):
so that's part of it. And then the other part
of the story is that well, dairy and meat prices
have are still fairly high. Dry price have come off
their peaks, but they're still quite high relative to history.
So we've seen quite a large boost of rural incomes.
And the first step had been that the rural sector
seemed to be using a lot of that to pay
down debt, and it of course had more of a
supporting effect in the South Island.
Speaker 1 (01:20):
But we think that this year we're going.
Speaker 3 (01:22):
To start to see more of it spread through the
broader economy. Is the farm sector boost income starts to
spit through to other parts of the country as well,
and that's typically how it works.
Speaker 1 (01:31):
It usually takes it's usually got a lag.
Speaker 3 (01:33):
That lag might have been a bit longer this time around,
But we think those two are the big forces that
are likely to be driving the recovery that, as you say,
is starting to show signs of arriving already and is
likely to leave lift growth. And finally, I mean you've
had a couple of years of really weak growth in
New Zealand, you'd say almost three years actually of really
weak conditions, and finally you're starting to get an upswing
(01:57):
in growth.
Speaker 1 (01:58):
In fact, you know.
Speaker 3 (01:58):
One of the other things to point out is that
if you do get two and a half percent growth,
which is our forecast, we're sort of the top edge
of consensus, you'd be outpacing the growth across the Tasman.
Speaker 1 (02:07):
I don't think Australia is going to be able to
grow that fast.
Speaker 3 (02:09):
In fact, I think Australia can't grow really much faster
than it's growing already, which is just a bit over
two percent. And so New Zealand might very well outperform
Australia this particular this year.
Speaker 2 (02:20):
Yeah, it's about time too. We've got a lot of
making up to do. Of course. Now what about the
tea word, you know, the tariffs and Trump because he's
markets haven't reacted, you know Greenland for example, he's troying
tariffs around. Markets haven't reacted in the same way that
they might have reacted twelve months ago. Have we kind
of learned to listen from that and are we there
(02:41):
for less concerned about a disruption on that front.
Speaker 1 (02:46):
Well, I think there's a lot in that and it's
a big question.
Speaker 3 (02:49):
I mean, I think if you look back over the
past year, the experience last year, the tariff effect wasn't
as large as was expected. That was partly because actually
in the end, the tariffs weren't as high. In the end,
we also saw that, you know, the story, the story
was still quite well supported by a lot of other
(03:09):
factors like the AI expansion and the data center investment story,
and that kept global truth trade holding up pretty well.
Now we expect as we've run through this year that
that's going to be the primary a key source of
growth too. Where reasonably positive on global growth this year,
But you have to keep in mind that there's it
could play out differently. It depends on what happens with
(03:31):
the tariffs. It depends on how these geopolitical developments we're
watching right now do play out. Markets, as you say,
have responded so far with a sense that you know,
things won't you know, things are still okay, and then
the markets have discounted all a lot of the bad news.
But it's you know, there's still a risk there that
we need to watch quite carefully.
Speaker 2 (03:51):
When do we start feeling it? This is the big
political Christian heading into an election year. You know, it's
one thing to talk about it, When do people feel it?
Speaker 3 (04:00):
I think one of the big things will be the
labor market turning around, and so the pick up in confidence,
the improvement and conditions, the fact that the business sector
is starting to look better and the consumers are starting
to spend a bit more. When that actually starts to
feed through to firms starting to do more hiring and
the labor markets starting to improve, and that then creating
enough jobs that it starts to put down with pressure,
(04:21):
we get to start to see the unemployment rate coming down.
That also might start to see fewer people leaving and
more people coming back from Australia as well, which has
been a feature of the story of the past couple
of years.
Speaker 1 (04:32):
But I think the turning in the.
Speaker 3 (04:34):
Labor market is going to be one of the main
things that's going to make it start to feel a
bit better. I think another thing to point to would
be when we start to see the housing market improve.
Speaker 1 (04:43):
A bit more.
Speaker 3 (04:44):
You know, New Zealand's had a very weak housing market
for the past couple of years, but I think once
the labor market turns, that will also support some a
bit of an upswing in the housing market. That combination
will get things going and we're expecting that to play
out through the year.
Speaker 2 (04:59):
When you say the Australian economy can't grow or sort
of tapping out it two percent. What's holding it back?
Speaker 1 (05:06):
Well, it's already operating it near its capacity, I mean.
Speaker 3 (05:10):
And so a part of that story is that we
didn't have as big an economic downturn after the pandemic.
So if you think back to the story, inflation surged
after the pandemic and central banks lifted interest rates to
slow their economies down, and in New Zealand's case, the.
Speaker 1 (05:25):
Economy slowed down a lot.
Speaker 3 (05:27):
You barely had any growth for two and a half years,
and that's been left you with a lot of spare capacity.
So that now that you're in an economic ups when
you've got capacity to draw back in and get the
economy going and grow a bit faster. In Australia's case,
the economy the RBA didn't lift interest rates as much,
the economy didn't slow as much, and as a result
of that, even a bit of an upswinging growth which
(05:47):
we saw through last year has been enough to absorb
that spare capacity and get us back to operating at
full capacity. We're operating at full employment, so the economy
doesn't seem to be able to grow any faster than
this sort of two percent rate that we're running out
at the moment. And what that's going to mean, I think,
you know, at least our Australian view is that the
RBA will probably have to start lifting interest rates this
(06:09):
year to lean into it, because we are already operating
out our capacity. But what it also means is that
that run rate, that potential growth rate we're seeing, the
two percent, is not particularly impressive. We need to focus
a lot more on doing reform to lift productivity and
allow us to be able to maybe grow a bit
faster and lift living standards more.
Speaker 2 (06:26):
Productivity obviously a big, well bigger problem for us than
it is for you though, right given the state of
our of our wages you know, still tracking thirty forty
percent behind Australia. What you know, when it comes to
politics election year, what should they be saying to us
to actually fix that?
Speaker 3 (06:49):
Well, I think productivity, you've got to think about levels
and changes. And I know this is getting into a
lot of detail, but yes, the level of productivity in
New Zealand is lower than Australia's. That's true, but both
countries have had really quite sluggish growth in productivity Australia's
productivity growth has stalled in recent years. So you know,
to that point, both countries need to focus on reform
(07:11):
agendas pro growth reform agendas that will help to support growth.
And you know, a part of that is a continued
focus on improving the tax system in both countries, in
Australia and New Zealand, and a lot of the story
is also to focus on trying to get investment in
areas where exports can grow more, where we can sell
more into the global into the global economy in Australia's case,
(07:33):
attracting more investment into critical minerals and potentially services exports
and those areas in New Zealand's case obviously supporting the
ongoing dairy meat agricultural farming story, but also other areas
like technology we're seeing you know, we're seeing more investment
in technology and AI and so on, and those sorts
(07:53):
of exports are I think an increasing area where both
countries have some opportunities if we can grasp them.
Speaker 2 (07:59):
Always good check, appreciate your time. Paul Blockhom Chief Economist HSBC.
For more from Hither Duplessy Allen Drive, listen live to
news talks it'd be from four pm weekdays, Or follow
the podcast on iHeartRadio
Bryan Bridge.
Speaker 2 (00:02):
Never mind the old cautious talk about green shoots. Confidence
is back in our economist predictions for the year ahead,
which is a great thing. HSBC predicting above trend GDP
growth two and a half percent this year. This is
up from a very weak point four last year. There
is a warning though an election year, politicians should be
focusing on pro growth economic reform to lift productivity. Paul
(00:22):
Bloxham is HSBC's chief economist. With me now, Paul, good, evening, Good,
Why are you so confident about our economic recovery? Well,
I mean it's underway. We've seen the PMI, we've seen
the PSI, so the ingredients are there.
Speaker 1 (00:36):
That's right. Well, so you've got quite a few of
the ingredients.
Speaker 3 (00:39):
I mean the ingredients we think are primarily that all
interest rates have come down a long way, and so
monetary conditions are quite loose and below neutral and mid
blow neutral cash rates setting from the RBNZ and that
should provide some support. I think it already is, and
that's partly reflecting in the PMIS and the cop and
consumer and business confidence. Consumer spendings picked up a bit,
(01:00):
so that's part of it. And then the other part
of the story is that well, dairy and meat prices
have are still fairly high. Dry price have come off
their peaks, but they're still quite high relative to history.
So we've seen quite a large boost of rural incomes.
And the first step had been that the rural sector
seemed to be using a lot of that to pay
down debt, and it of course had more of a
supporting effect in the South Island.
Speaker 1 (01:20):
But we think that this year we're going.
Speaker 3 (01:22):
To start to see more of it spread through the
broader economy. Is the farm sector boost income starts to
spit through to other parts of the country as well,
and that's typically how it works.
Speaker 1 (01:31):
It usually takes it's usually got a lag.
Speaker 3 (01:33):
That lag might have been a bit longer this time around,
But we think those two are the big forces that
are likely to be driving the recovery that, as you say,
is starting to show signs of arriving already and is
likely to leave lift growth. And finally, I mean you've
had a couple of years of really weak growth in
New Zealand, you'd say almost three years actually of really
weak conditions, and finally you're starting to get an upswing
(01:57):
in growth.
Speaker 1 (01:58):
In fact, you know.
Speaker 3 (01:58):
One of the other things to point out is that
if you do get two and a half percent growth,
which is our forecast, we're sort of the top edge
of consensus, you'd be outpacing the growth across the Tasman.
Speaker 1 (02:07):
I don't think Australia is going to be able to
grow that fast.
Speaker 3 (02:09):
In fact, I think Australia can't grow really much faster
than it's growing already, which is just a bit over
two percent. And so New Zealand might very well outperform
Australia this particular this year.
Speaker 2 (02:20):
Yeah, it's about time too. We've got a lot of
making up to do. Of course. Now what about the
tea word, you know, the tariffs and Trump because he's
markets haven't reacted, you know Greenland for example, he's troying
tariffs around. Markets haven't reacted in the same way that
they might have reacted twelve months ago. Have we kind
of learned to listen from that and are we there
(02:41):
for less concerned about a disruption on that front.
Speaker 1 (02:46):
Well, I think there's a lot in that and it's
a big question.
Speaker 3 (02:49):
I mean, I think if you look back over the
past year, the experience last year, the tariff effect wasn't
as large as was expected. That was partly because actually
in the end, the tariffs weren't as high. In the end,
we also saw that, you know, the story, the story
was still quite well supported by a lot of other
(03:09):
factors like the AI expansion and the data center investment story,
and that kept global truth trade holding up pretty well.
Now we expect as we've run through this year that
that's going to be the primary a key source of
growth too. Where reasonably positive on global growth this year,
But you have to keep in mind that there's it
could play out differently. It depends on what happens with
(03:31):
the tariffs. It depends on how these geopolitical developments we're
watching right now do play out. Markets, as you say,
have responded so far with a sense that you know,
things won't you know, things are still okay, and then
the markets have discounted all a lot of the bad news.
But it's you know, there's still a risk there that
we need to watch quite carefully.
Speaker 2 (03:51):
When do we start feeling it? This is the big
political Christian heading into an election year. You know, it's
one thing to talk about it, When do people feel it?
Speaker 3 (04:00):
I think one of the big things will be the
labor market turning around, and so the pick up in confidence,
the improvement and conditions, the fact that the business sector
is starting to look better and the consumers are starting
to spend a bit more. When that actually starts to
feed through to firms starting to do more hiring and
the labor markets starting to improve, and that then creating
enough jobs that it starts to put down with pressure,
(04:21):
we get to start to see the unemployment rate coming down.
That also might start to see fewer people leaving and
more people coming back from Australia as well, which has
been a feature of the story of the past couple
of years.
Speaker 1 (04:32):
But I think the turning in the.
Speaker 3 (04:34):
Labor market is going to be one of the main
things that's going to make it start to feel a
bit better. I think another thing to point to would
be when we start to see the housing market improve.
Speaker 1 (04:43):
A bit more.
Speaker 3 (04:44):
You know, New Zealand's had a very weak housing market
for the past couple of years, but I think once
the labor market turns, that will also support some a
bit of an upswing in the housing market. That combination
will get things going and we're expecting that to play
out through the year.
Speaker 2 (04:59):
When you say the Australian economy can't grow or sort
of tapping out it two percent. What's holding it back?
Speaker 1 (05:06):
Well, it's already operating it near its capacity, I mean.
Speaker 3 (05:10):
And so a part of that story is that we
didn't have as big an economic downturn after the pandemic.
So if you think back to the story, inflation surged
after the pandemic and central banks lifted interest rates to
slow their economies down, and in New Zealand's case, the.
Speaker 1 (05:25):
Economy slowed down a lot.
Speaker 3 (05:27):
You barely had any growth for two and a half years,
and that's been left you with a lot of spare capacity.
So that now that you're in an economic ups when
you've got capacity to draw back in and get the
economy going and grow a bit faster. In Australia's case,
the economy the RBA didn't lift interest rates as much,
the economy didn't slow as much, and as a result
of that, even a bit of an upswinging growth which
(05:47):
we saw through last year has been enough to absorb
that spare capacity and get us back to operating at
full capacity. We're operating at full employment, so the economy
doesn't seem to be able to grow any faster than
this sort of two percent rate that we're running out
at the moment. And what that's going to mean, I think,
you know, at least our Australian view is that the
RBA will probably have to start lifting interest rates this
(06:09):
year to lean into it, because we are already operating
out our capacity. But what it also means is that
that run rate, that potential growth rate we're seeing, the
two percent, is not particularly impressive. We need to focus
a lot more on doing reform to lift productivity and
allow us to be able to maybe grow a bit
faster and lift living standards more.
Speaker 2 (06:26):
Productivity obviously a big, well bigger problem for us than
it is for you though, right given the state of
our of our wages you know, still tracking thirty forty
percent behind Australia. What you know, when it comes to
politics election year, what should they be saying to us
to actually fix that?
Speaker 3 (06:49):
Well, I think productivity, you've got to think about levels
and changes. And I know this is getting into a
lot of detail, but yes, the level of productivity in
New Zealand is lower than Australia's. That's true, but both
countries have had really quite sluggish growth in productivity Australia's
productivity growth has stalled in recent years. So you know,
to that point, both countries need to focus on reform
(07:11):
agendas pro growth reform agendas that will help to support growth.
And you know, a part of that is a continued
focus on improving the tax system in both countries, in
Australia and New Zealand, and a lot of the story
is also to focus on trying to get investment in
areas where exports can grow more, where we can sell
more into the global into the global economy in Australia's case,
(07:33):
attracting more investment into critical minerals and potentially services exports
and those areas in New Zealand's case obviously supporting the
ongoing dairy meat agricultural farming story, but also other areas
like technology we're seeing you know, we're seeing more investment
in technology and AI and so on, and those sorts
(07:53):
of exports are I think an increasing area where both
countries have some opportunities if we can grasp them.
Speaker 2 (07:59):
Always good check, appreciate your time. Paul Blockhom Chief Economist HSBC.
For more from Hither Duplessy Allen Drive, listen live to
news talks it'd be from four pm weekdays, Or follow
the podcast on iHeartRadio
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