January 29, 2025 • 10 mins
New Zealand’s “rockstar economy” seems to have become washed up.
HSBC chief economist Paul Bloxham coined the term in 2014, and in an update last week confirmed that that’s far from the case at present.
He says that the economy had the largest decline in economic growth in the developed world last year, driven by interest rate increases in response to post-pandemic inflation.
Bloxham joined Kerre Woodham to dig into the data, and discuss what could be done to improve the economy.
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Speaker 1 (00:06):
You're listening to the Kerrywood and Mornings podcast from News Talks.
Speaker 2 (00:10):
He'd be.
Speaker 3 (00:11):
Just before I returned to work, I was reading the
very interesting comments by HSBC's chief economist Paul Bloxham. Bloxham,
you probably will work call coined the phrase of around
New Zealand the rock star economy that New Zealand had. Well,
she's not looking like a rock star now, she's looking
like a raded old has been that never really was.
(00:32):
In an update last week, he said the economy had
had the largest decline and economic growth in the developed
world last year, driven by interest rate increases in response
to post pandemic inflation. HSBC chief economist Paul Bloxham joins me, now,
very good morning to you. Good morning, good morning, good morning.
(00:53):
So is it just economies of scale? Is it because
we are so small that any kind of economic wind
changes are going to affect us that much worse.
Speaker 4 (01:04):
Well, you're certainly a small, open economy, and so what
happens in the rest of the world matters a lot.
And of course it can have big ramifications for the
New Zealand economy. But at the same time that it
presents those challenges, it also presents most of the opportunities
that you have. The idea to try to grow a small,
open economy is to be as competitive as possible and
open as possible, attract investment from offshore as well as locally,
(01:28):
and try and drive the economy using exports and being
able to tie into the global system. So it presents challenges,
but it also presents those opportunities.
Speaker 3 (01:38):
So when we look at the policies of the previous administration,
the under labor would they have been helpful or hindered
our economic performance?
Speaker 4 (01:49):
Well, the key here, as I say, is to try
to make the economy as competitive as possible, as efficient
as possible, as attractive to investment as possible, and we
can we talk about sort of investment foreign investment, which
is very important because in New Zealand's case, of course,
there isn't quite enough saving there to really hump prime
the investment side. But we should also be mobilizing the
most domestics saving in terms of driving the economy. One
(02:11):
of the things that's been driving the New Zealand economy
for so you know over a run of years, as
we know, has been strong population growth and input migration.
It's a perfectly legitimate growth model as a way to
grow the economy, but it can't be the thing that
primarily lifts living standards. If you want to lift living
standards and grow your national income on a per capita basis,
which is how you lift living standards, you've got to
(02:32):
aim at trying to lift productivity. You've got to find
growth engines, things that can drive your growth, and you've
got to find better ways of doing things, innovations and
so on. So the things policy makers can do to
support that are things aimed at trying to make the
economy more flexible, attract that international investment, focus on growth engines,
and I think in New Zealand's case, you know where
(02:52):
the primary growth engines are services exports, which of course
took a beating through the pandemic because once you close
the border, that was a very difficult thing to be doing.
Speaker 2 (03:01):
And of course it needs to continue to.
Speaker 4 (03:03):
Revive and you need to continue to focus on services
exports and agricultural exports because that's where a lot of
your comparative advantage lies. Now that obviously presents a challenge
because you've got environmental challenges as well as trying to
grow that industry, but finding that right balance is what
policymakers really need to be aiming to do.
Speaker 3 (03:22):
So I guess you know, this coalition government is looking
at reducing bureaucracy, making it easier for businesses to do business,
looking at foreign investment, trying to get agreements, trade agreements
with other countries. That's the right track to allow room
to grow.
Speaker 4 (03:43):
These are all the right sorts of things to be
headed towards be trying to implement. And of course the
question is going to be can you know, can you
implement policy that actually delivers in the end, so you
do get more investment, you do get an acceptance that
there's more capital coming in and supporting growth, And do
you remove enough of the regulatory barriers and enough of
the other barriers to investors seeing New Zealand as a
(04:05):
great opportunity so that those investors can lower, you know,
they can meet their hurdle rates. If they want to
make investments, they want to get returns, They've got hurdle
rates that they have to get over the top of.
And one of the costs for them is, you know,
how stringent or how constraining is the regulatory environment, how
much available capital is there, how much available labor is there.
These are all the sorts of things that go into
(04:26):
that calculation, and so policy makers aiming to try and
grow the economy should be aiming to try and remove
as many of those barriers as possible to get the
economy to be able to grow faster and as I say,
lift productivity growth.
Speaker 2 (04:40):
I saw the RBNZ even they're chief.
Speaker 4 (04:42):
Economists out just this week, you know, with a speech
that was all about productivity.
Speaker 2 (04:46):
This is not really the purview of the central Bank.
Speaker 4 (04:49):
It doesn't really have any tools to deal with that,
but it's such an important, such an important point that
you've got the chief economist at the Central Bank saying, look,
you need to look at these productivity This is the
way we're going to be able to lift the potential
growth rate and lift our living standards in the medium term.
Speaker 3 (05:06):
It's interesting that it's just such a mix of you know,
there's been such a collision of ideology over the last
few years, over the last couple of generations, you know,
there's been a massive lurch in one direction ideologically, and
now we're going another way. And I think probably businesses
are feeling a little bit punch drunk from the pandemic certainly,
(05:27):
and the effects of that, and then from the changes
in ideology and government policy. How much does confidence and
a belief that you're going in the right direction play
in terms of productivity and economic performance?
Speaker 4 (05:44):
I think I think one thing to keep in mind
is this is not a unique New Zealand story. I mean,
this is a feature of what we've seen happen globally.
Policymakers are shifting in different directions, and you know, I
guess the way I think about it is, you've got
the economy.
Speaker 2 (05:57):
If you think about like I think of it as a.
Speaker 4 (05:59):
Pie, and you want to grow that pie, and then
you want to be able to distribute it across your population.
You want to be able to deliver all the things
that we need, all the social support and so on.
But if you sort of move in one direction and
start focusing on distributing more on distributing that pie rather
than growing that pie, then you haven't got as much
pie to share around. So the key, you know, is
(06:20):
to find the right balance between being able to distribute
it appropriately but also grow it. And I think if
you take the focus off growing it, that's where you
start to get challenges and that's where I think you
could stay that we've got challenges on both sides of
the Tasman.
Speaker 2 (06:36):
Australia has a very similar story where productivity.
Speaker 4 (06:38):
Has been really really weak over the last few years,
and so that needs to be a really big focus
for Australia as well as New Zealand. How do we
grow the pie, how do we make the economy more efficient,
attract investment, how do we get the economy to grow
faster and lift living standards, and then thinking more about how.
Speaker 2 (06:55):
We can distribute it and share it.
Speaker 4 (06:57):
Both are important, but it's important to also, you know,
it is important to keep a prioritize, to prioritize growing
the economy.
Speaker 3 (07:05):
And what is the you know, because for a large part,
entrepreneurs and business people just want the government to get
out of the way. They know what they're doing, they
do it well, they just want to keep doing it
and do it better and grow their businesses. What could
governments be doing to assist them.
Speaker 4 (07:24):
Well, we need a regulatory environment, that's true, and so
you have to start there, you have to say, but
you have to also make sure that it's as as
streamlined as possible, that there aren't sort of multiple conflicting
regulations that they you know, that it actually does is
easier for businesses to be able to make sense and
be able to do business.
Speaker 2 (07:40):
That it's easier for.
Speaker 4 (07:42):
Them to obviously meet their tax obligations, and so anywhere
where you can make reforms to make those systems more efficient,
and businesses say, well, actually, I can see that there's
this growth opportunity. And as you say, consistency also in
terms of policy making helps because businesses are not making
plans about just now, they're making plans for the medium term.
Their horizons are longer, you know, and so we need
(08:05):
to win have consistency and a focus on making the economy,
you know, making those systems as efficient as possible to
attract the investment we need.
Speaker 3 (08:15):
So is there ever going to be a time we
were going to go back to being a rock star
or are we destined to be a drummer in the
Cozi Club band for the rest of our lives?
Speaker 4 (08:25):
Well, I mean, I think it's worth putting some context here.
So in twenty fourteen, at the beginning of it, actually
we said New Zealand we thought it would be a
rockstar economy, and it turns out that year, well, you
had the strongest performance across the developed world, I mean
the strongest growth across the developed world in twenty fourteen,
and so we kind.
Speaker 2 (08:40):
Of felt fairly vindicated.
Speaker 4 (08:42):
You were talking out New Zealand and that it was
doing very well, and you had these growth engines that
were getting going strong exports and support from China. The
services exports story was getting going, you know, dairy and
a meat story as well as the education story to
a degree in tourism was going strong. And so it
all sort of came together in that as you say
(09:04):
phrase that we used to describe things, well, you've just
been through a tough time.
Speaker 2 (09:08):
I mean, I think that's the way to say it.
Last year.
Speaker 4 (09:11):
If you do the same comparison, and we obviously track
a lot of countries at HSBC where we're you know,
they're still us because we haven't got the final data,
but we think that New Zealand will have had the
weakest growth or a decline actually a decline in GDP
in twenty twenty four across that Developed World group.
Speaker 2 (09:30):
So it sets the bar the challenge. The starting point is.
Speaker 4 (09:33):
That you need to do more to grow the economy.
We know why the economy slowed down so much last year.
We know that a lot of it was to try
to deal with the inflation challenge. Getting inflation down has
been something that the Central Bank has put a high,
very high priority on and their aim is to get
and they have done got an inflation down, so that
now we need policymakers, other policy makers to step up
(09:54):
and start focusing on those growth engines and attracting that
investment that we've just talked about, and attracting workers as well,
getting workers to stay or to come to New Zealand
rather than leaving, to get the economy to potentially pick up.
Where are those growth engines Well, I think they're still
mostly agriculture and services exports, but there may very well
(10:16):
be others, you know, tech sector and innovation in those areas.
But reducing the barriers to attract that investment has to
be a priority if you're going to ever retain.
Speaker 2 (10:26):
Ever get back that status of being a rock star.
Speaker 3 (10:29):
I really hope that I talk to you again when
we have got back that status, when our star is
shining once again. I thank you very much for your time.
Paul Bloxam, HSBC Chief Economists.
Speaker 1 (10:38):
For more from Kerry Wood and mornings. Listen live to
News Talks A B from nine am weekdays, or follow
the podcast on iHeartRadio
You're listening to the Kerrywood and Mornings podcast from News Talks.
Speaker 2 (00:10):
He'd be.
Speaker 3 (00:11):
Just before I returned to work, I was reading the
very interesting comments by HSBC's chief economist Paul Bloxham. Bloxham,
you probably will work call coined the phrase of around
New Zealand the rock star economy that New Zealand had. Well,
she's not looking like a rock star now, she's looking
like a raded old has been that never really was.
(00:32):
In an update last week, he said the economy had
had the largest decline and economic growth in the developed
world last year, driven by interest rate increases in response
to post pandemic inflation. HSBC chief economist Paul Bloxham joins me, now,
very good morning to you. Good morning, good morning, good morning.
(00:53):
So is it just economies of scale? Is it because
we are so small that any kind of economic wind
changes are going to affect us that much worse.
Speaker 4 (01:04):
Well, you're certainly a small, open economy, and so what
happens in the rest of the world matters a lot.
And of course it can have big ramifications for the
New Zealand economy. But at the same time that it
presents those challenges, it also presents most of the opportunities
that you have. The idea to try to grow a small,
open economy is to be as competitive as possible and
open as possible, attract investment from offshore as well as locally,
(01:28):
and try and drive the economy using exports and being
able to tie into the global system. So it presents challenges,
but it also presents those opportunities.
Speaker 3 (01:38):
So when we look at the policies of the previous administration,
the under labor would they have been helpful or hindered
our economic performance?
Speaker 4 (01:49):
Well, the key here, as I say, is to try
to make the economy as competitive as possible, as efficient
as possible, as attractive to investment as possible, and we
can we talk about sort of investment foreign investment, which
is very important because in New Zealand's case, of course,
there isn't quite enough saving there to really hump prime
the investment side. But we should also be mobilizing the
most domestics saving in terms of driving the economy. One
(02:11):
of the things that's been driving the New Zealand economy
for so you know over a run of years, as
we know, has been strong population growth and input migration.
It's a perfectly legitimate growth model as a way to
grow the economy, but it can't be the thing that
primarily lifts living standards. If you want to lift living
standards and grow your national income on a per capita basis,
which is how you lift living standards, you've got to
(02:32):
aim at trying to lift productivity. You've got to find
growth engines, things that can drive your growth, and you've
got to find better ways of doing things, innovations and
so on. So the things policy makers can do to
support that are things aimed at trying to make the
economy more flexible, attract that international investment, focus on growth engines,
and I think in New Zealand's case, you know where
(02:52):
the primary growth engines are services exports, which of course
took a beating through the pandemic because once you close
the border, that was a very difficult thing to be doing.
Speaker 2 (03:01):
And of course it needs to continue to.
Speaker 4 (03:03):
Revive and you need to continue to focus on services
exports and agricultural exports because that's where a lot of
your comparative advantage lies. Now that obviously presents a challenge
because you've got environmental challenges as well as trying to
grow that industry, but finding that right balance is what
policymakers really need to be aiming to do.
Speaker 3 (03:22):
So I guess you know, this coalition government is looking
at reducing bureaucracy, making it easier for businesses to do business,
looking at foreign investment, trying to get agreements, trade agreements
with other countries. That's the right track to allow room
to grow.
Speaker 4 (03:43):
These are all the right sorts of things to be
headed towards be trying to implement. And of course the
question is going to be can you know, can you
implement policy that actually delivers in the end, so you
do get more investment, you do get an acceptance that
there's more capital coming in and supporting growth, And do
you remove enough of the regulatory barriers and enough of
the other barriers to investors seeing New Zealand as a
(04:05):
great opportunity so that those investors can lower, you know,
they can meet their hurdle rates. If they want to
make investments, they want to get returns, They've got hurdle
rates that they have to get over the top of.
And one of the costs for them is, you know,
how stringent or how constraining is the regulatory environment, how
much available capital is there, how much available labor is there.
These are all the sorts of things that go into
(04:26):
that calculation, and so policy makers aiming to try and
grow the economy should be aiming to try and remove
as many of those barriers as possible to get the
economy to be able to grow faster and as I say,
lift productivity growth.
Speaker 2 (04:40):
I saw the RBNZ even they're chief.
Speaker 4 (04:42):
Economists out just this week, you know, with a speech
that was all about productivity.
Speaker 2 (04:46):
This is not really the purview of the central Bank.
Speaker 4 (04:49):
It doesn't really have any tools to deal with that,
but it's such an important, such an important point that
you've got the chief economist at the Central Bank saying, look,
you need to look at these productivity This is the
way we're going to be able to lift the potential
growth rate and lift our living standards in the medium term.
Speaker 3 (05:06):
It's interesting that it's just such a mix of you know,
there's been such a collision of ideology over the last
few years, over the last couple of generations, you know,
there's been a massive lurch in one direction ideologically, and
now we're going another way. And I think probably businesses
are feeling a little bit punch drunk from the pandemic certainly,
(05:27):
and the effects of that, and then from the changes
in ideology and government policy. How much does confidence and
a belief that you're going in the right direction play
in terms of productivity and economic performance?
Speaker 4 (05:44):
I think I think one thing to keep in mind
is this is not a unique New Zealand story. I mean,
this is a feature of what we've seen happen globally.
Policymakers are shifting in different directions, and you know, I
guess the way I think about it is, you've got
the economy.
Speaker 2 (05:57):
If you think about like I think of it as a.
Speaker 4 (05:59):
Pie, and you want to grow that pie, and then
you want to be able to distribute it across your population.
You want to be able to deliver all the things
that we need, all the social support and so on.
But if you sort of move in one direction and
start focusing on distributing more on distributing that pie rather
than growing that pie, then you haven't got as much
pie to share around. So the key, you know, is
(06:20):
to find the right balance between being able to distribute
it appropriately but also grow it. And I think if
you take the focus off growing it, that's where you
start to get challenges and that's where I think you
could stay that we've got challenges on both sides of
the Tasman.
Speaker 2 (06:36):
Australia has a very similar story where productivity.
Speaker 4 (06:38):
Has been really really weak over the last few years,
and so that needs to be a really big focus
for Australia as well as New Zealand. How do we
grow the pie, how do we make the economy more efficient,
attract investment, how do we get the economy to grow
faster and lift living standards, and then thinking more about how.
Speaker 2 (06:55):
We can distribute it and share it.
Speaker 4 (06:57):
Both are important, but it's important to also, you know,
it is important to keep a prioritize, to prioritize growing
the economy.
Speaker 3 (07:05):
And what is the you know, because for a large part,
entrepreneurs and business people just want the government to get
out of the way. They know what they're doing, they
do it well, they just want to keep doing it
and do it better and grow their businesses. What could
governments be doing to assist them.
Speaker 4 (07:24):
Well, we need a regulatory environment, that's true, and so
you have to start there, you have to say, but
you have to also make sure that it's as as
streamlined as possible, that there aren't sort of multiple conflicting
regulations that they you know, that it actually does is
easier for businesses to be able to make sense and
be able to do business.
Speaker 2 (07:40):
That it's easier for.
Speaker 4 (07:42):
Them to obviously meet their tax obligations, and so anywhere
where you can make reforms to make those systems more efficient,
and businesses say, well, actually, I can see that there's
this growth opportunity. And as you say, consistency also in
terms of policy making helps because businesses are not making
plans about just now, they're making plans for the medium term.
Their horizons are longer, you know, and so we need
(08:05):
to win have consistency and a focus on making the economy,
you know, making those systems as efficient as possible to
attract the investment we need.
Speaker 3 (08:15):
So is there ever going to be a time we
were going to go back to being a rock star
or are we destined to be a drummer in the
Cozi Club band for the rest of our lives?
Speaker 4 (08:25):
Well, I mean, I think it's worth putting some context here.
So in twenty fourteen, at the beginning of it, actually
we said New Zealand we thought it would be a
rockstar economy, and it turns out that year, well, you
had the strongest performance across the developed world, I mean
the strongest growth across the developed world in twenty fourteen,
and so we kind.
Speaker 2 (08:40):
Of felt fairly vindicated.
Speaker 4 (08:42):
You were talking out New Zealand and that it was
doing very well, and you had these growth engines that
were getting going strong exports and support from China. The
services exports story was getting going, you know, dairy and
a meat story as well as the education story to
a degree in tourism was going strong. And so it
all sort of came together in that as you say
(09:04):
phrase that we used to describe things, well, you've just
been through a tough time.
Speaker 2 (09:08):
I mean, I think that's the way to say it.
Last year.
Speaker 4 (09:11):
If you do the same comparison, and we obviously track
a lot of countries at HSBC where we're you know,
they're still us because we haven't got the final data,
but we think that New Zealand will have had the
weakest growth or a decline actually a decline in GDP
in twenty twenty four across that Developed World group.
Speaker 2 (09:30):
So it sets the bar the challenge. The starting point is.
Speaker 4 (09:33):
That you need to do more to grow the economy.
We know why the economy slowed down so much last year.
We know that a lot of it was to try
to deal with the inflation challenge. Getting inflation down has
been something that the Central Bank has put a high,
very high priority on and their aim is to get
and they have done got an inflation down, so that
now we need policymakers, other policy makers to step up
(09:54):
and start focusing on those growth engines and attracting that
investment that we've just talked about, and attracting workers as well,
getting workers to stay or to come to New Zealand
rather than leaving, to get the economy to potentially pick up.
Where are those growth engines Well, I think they're still
mostly agriculture and services exports, but there may very well
(10:16):
be others, you know, tech sector and innovation in those areas.
But reducing the barriers to attract that investment has to
be a priority if you're going to ever retain.
Speaker 2 (10:26):
Ever get back that status of being a rock star.
Speaker 3 (10:29):
I really hope that I talk to you again when
we have got back that status, when our star is
shining once again. I thank you very much for your time.
Paul Bloxam, HSBC Chief Economists.
Speaker 1 (10:38):
For more from Kerry Wood and mornings. Listen live to
News Talks A B from nine am weekdays, or follow
the podcast on iHeartRadio
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