No signs of 'rockstar economy' fading away - Paul Bloxham

The man who famously called New Zealand a 'rockstar economy' insists the country's still rocking on.

HSBC chief economist Paul Bloxham made that proclamation back in 2014, and he's holding the line - despite evidence the global economy is cooling.

On Tuesday morning the International Monetary Fund cut its forecast for growth, citing Brexit and the US-China trade war as key risks.

But Bloxham - an Australian - told The AM Show he has no doubts New Zealand remains in a good place economically.

"It's still rock and roll to me in the sense that you guys are still doing quite well when you compare New Zealand to the rest of the world."

Consumer confidence and consumption growth are still holding up - the big challenge Bloxham sees is that the economy is hitting capacity constraints.

"You're running up against the capacity to grow. The unemployment rate is around a decade low, the participation rate in the labour market's at a record high - you're running up against the capacity. That's putting upward pressure on prices."

And that means cost increases - one of the key reasons why business confidence, which has been weak now for quite some time has been weak.

"It's not that businesses are worried about weak demand or slowing growth, it's that businesses are actually running up against capacity and worried about the increasing costs and those sorts of things."

While Bloxham concedes the election of a Labour-led coalition Government led business to toss their toys out of the cot in those pessimistic confidence surveys, on average that's what tends to happen when left of centre governments come into power.

And there's another explanation for the lull in business confidence - and again, it's capacity constraints and rising costs which have been constraining businesses.

That's why some employers are having problems finding good staff.

"This is part of what I mean by hitting capacity constraints," Bloxham said.

"You can't find good staff because the labour market's already very tight and it's harder to build, to therefore get the capital and the people you need to do the activity you want."

NZ housing market facing capacity constraints

One example is the construction industry, Bloxham says.

"You've had strong population growth for a run of years but you haven't built enough housing as yet in Auckland, you've still got a lot of catch-up to do there and you haven't built enough infrastructure to meet that population demand."

Reform that speeds up the regulatory space in order to allow more things to be built is helpful too - but again, the main thing holding up growth is simply that New Zealand is at capacity.

Especially compared to Australia, which has different problems - house prices are falling in major cities there, following a massive house price boom.

Bloxham won't say the bubble's burst across the Tasman, because it's happening in a very orderly fashion.

"Normally when you have a housing bubble burst it's (chaos) and what you're seeing is actually very few signs of distressed sales, no rise in loan arrears - people are able to make their mortgage repayments and so on. And that happens to be because the housing market is cooling at a time when the labour market is strengthening. People have got jobs. The unemployment rate in Australia is at an eight-year low - in New South Wales and Victoria, the two largest states, it's at its lowest level since the mid 1970s."

It's a different picture in New Zealand.

"The main fundamental - if you think about Auckland for example - is that you've still got a huge under-supply. You've had huge population growth for a run of years and you haven't built enough housing to meet that demand. Whereas in Sydney and Melbourne, we've had strong population growth but we have had a really large boom in apartment building. So we've actually finally caught up, and that's part of the reason I think why the housing market's cooling. Until you catch up in Auckland, which I just don't think is happening in the near term - partly because you're already hitting capacity constraints in the building industry, I don't think you're going to see the sort of correction we're seeing there (in Australia)."

Bloxham points out that outside of Auckland, house prices are actually rising in cities like Wellington and Dunedin.

"They're rising at pretty decent clips."