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Double Shot Interview: HSBC's Paul Bloxham says RBNZ should hike OCR to control inflation and is confident of continued Chinese growth

Double Shot Interview: HSBC's Paul Bloxham says RBNZ should hike OCR to control inflation and is confident of continued Chinese growth

HSBC Australia and New Zealand's Chief Economist Paul Bloxham speaks to Bernard Hickey in the Double Shot Interview above about the outlook for the New Zealand economy, the Australian economy, New Zealand's Official Cash Rate (OCR) and the Chinese economy.

Bloxham said the New Zealand economic outlook was positive with support over the next year from the Rugby World Cup, the Christchurch earthquake rebuild and high commodity prices.

He said New Zealand was starting the recovery with inflation near the upper end of the target band. See more here in our earlier article about inflation expectations.

"So I think that interest rates will probably need to rise from here in order to get rid of that inflation problem," Bloxham said, adding New Zealand's economy was starting its recovery with a relatively high inflation rate. High inflation globally would not help.

"Asia has an inflation problem and further quantitative easing or further easing of monetary policy in the Western World will further exacerbate that problem," he said.

HSBC's central forecast was for two OCR increases by the end of the year and a rise of around 175 basis points over the next 18 months.

Bloxham said the focus of the New Zealand economy was shifting from housing-market driven consumption to export driven production.

Australia's economy was overall doing well, although there was a divergence between high investment in mining, but weak consumer, retail and manufacturing sectors, partly because of the high Australian dollar.

New Zealand exporters to Australia's consumer economy may feel that weakness.

"Unless you're really tied into that mining story, you probably won't see as much of the income coming your way," he said.

Positive on China

Bloxham said China's economic outlook was positive with growth over the last year of about 9.5%, with China and the emerging economies at the heart of global economic growth.

"Domestic demand is driving a lot of what is happening now in China. It's not so much driven by the export contribution. The middle class is expanding, domestic consumption is growing and there's an extraordinary amount of investment going into infrastructure that is holding up commodity prices, " he said, adding HSBC saw that growth continuing.

"The Chinese economy has quite a deal of structural expansion to come. There's a lot of urbanisation to come so there's still a long way to run in that boom," he said.

Bloxham agreed that some of the infrastructure spending may be of a poorer quality and generate some bad loans.

"But you've got to keep in mind that China is enormous. There are 680 cities in China. There are 93 cities in China with more than five million people. So when you hear these stories of local governments struggling, you've got to keep in mind that the central government is actually in an extraordinarily good position and could still afford to support the economy if required, and has relatively low debt levels," he said.

Bloxham said the combination of China and India was now 50% larger now than four years ago, while the North Atlantic economies (US, Europe, Canada) had actually contracted.

Growth globally was already being driven by China and India, he said.

'Can kicking'

Bloxham agreed European authorities had 'kicked the can' of high debt down the road, although America still had more room to act.

"What we've seen since the Global financial Crisis is a shfit of debt to the public sector from the private sector and now it's at a point where it needs some sorting out. This is the key thing that's driving volatility in financial markets -- that uncertainty about what policymakers might do and whether they're capable of supporting the economy," he said.

"The main thing is that global growth is now being driven more by the emerging economies than those (European and US) economies. Although those markets get a great deal of focus in the media, you've got to keep in mind that a lot of the growth is coming from somewhere else."

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14 Comments

Alan B is already behind the 8 ball...the gate was left open months ago...remember by his own words any change to the ocr takes 2 years to fully impact....Two full years!

 "Power companies are warning of looming price rises, despite figures showing electricity costs have nearly doubled in the last 11 years" herald.

nah...that's not inflation....quick...pull power prices from the index...

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Mr Hickey ....good Sir.are you attending or planning an interview with David Tomson...growth consultant..while he's around these parts.

if  what he has to say is based on knowledge...he would appear out of step  universally....but then the Devil's in the detail.

http://tvnz.co.nz/business-news/amp-forget-recession-boom-coming-4-52-video-4363525

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Christov,

Many thanks. Hadn't planned to. Thomson is a former McKinsey consultant to growth companies  rather than an economist.

http://www.blueprintgrowth.com/about/David_G_Thomson_Biography.html

He's right some companies will grow quickly. He consults to those ones. If there was a generalised picture of growth companies, employment growth might be a bit stronger than it is...

cheers

Bernard

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Cheers for that..!

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Interesting link, thanks for that.

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So he's totally happy with the chinese 10% growth per annum, which translates into a doubling of the Chinese economy every 7 years.....just where will the energy, materials come from and the produce go to?  just how long can the environmental damage, shortages and lies continue? 

Makes no sense to me, personally I think we  re about it.....maybe a year or so....maybe 3.....long enough for JK to get re-elected and "discover" he has to make some decisions we wont like....

regards

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"... the Global financial Crisis is a shfit of debt to the public sector from the private sector and now it's at a point where it needs some sorting out..." Translation: The massive debt has gone from just a few of us, to 'the Government ( isn't that 'us' as well!), who will pass it back to all of us.

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Quite why anyone thinks we will have $s left to buy anything while we are loaded to the gills with public debt is mind boggling....

Oh wait this is why GS etc see moving into the emerging - developing world middle class as so crucial to their future...hand out credit cads and housing loans like confetti and leave them crippled as well.

I really thinking shooting is an option myself.

regards

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What happens when the Chinese banking system implodes?

 http://www.macrobusiness.com.au/2011/08/chinese-banking-perversity/

Long, but worth listening to.

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Then JK can let loose the dogs of war and scr*w us all over good and proper.....lucky us, I cant wait.....

:/

regards

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HSBC economist talks his banks' book.

 

Shock.

 

Horror.

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HSBC NZ clearly hasn't dialed into their HO calls for a few weeks........China's raw material orders are plummeting fast. Costs of production rising. No its not going to grind to a complete halt but historic growth rates are not sustainable in current conditions.........and NZ can chart its own recovery from a RWC and earthquake rebuild? I think this ignores a few pieces of the puzzle....

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This Economist from HSbc sees a wonderful world full of pre-2008 growth. Yep, its all up and up. Oh, and lets get those interest rates up to cool off rampant growth and zooming inflation...
Shame reality is somewhat more sombre...

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Actually, interest rates will be dropping as credit demand drops and more stimulus needed for the patient ie NZ economy ...... that's down ...

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