New Zealand's 'rockstar economy' lost its 'mojo' - HSBC economist Paul Bloxham

The economist who coined the term "rockstar economy" says New Zealand's financial system has lost its "mojo", blaming global headwinds as well as Government policy uncertainty.

Statistics New Zealand revealed on Thursday that New Zealand's gross domestic product (GDP) had grown 0.5 percent in the April-June quarter. It was the first time GDP had reached $300 billion.

However, despite that, the rate of growth is falling. In the previous quarter, growth jumped 0.6 percent. Annual growth is also down to its lowest level since 2013.

HSBC chief economist Paul Bloxham - who famously said that under the previous Government New Zealand had a "rockstar economy" - told The AM Show on Friday that the economy was definitely slowing down.

"New Zealand was a rockstar economy in 2014, actually right through to 2016. If you look at the numbers over that three-year period, growth ran at 3.7 percent. That is pretty good, that is well above trend," he said.

"But since then, things have slowed down... we are sort of thinking the rockstar term might have run its course. You seem to have lost your mojo."

New Zealand's 'rockstar economy' lost its 'mojo' - HSBC economist Paul Bloxham
Photo credit: The AM Show.

Bloxham said the slowdown was the result of both international and domestic factors. 

International trade tensions - particularly between China and the United States - as well as the uncertainty surrounding Brexit are causing global headwinds for a country like New Zealand that relies heavily on exports.

Weak wage growth and falling housing prices in Australia also mean fewer Australians are coming to New Zealand to spend, Bloxham said.

But he also believes uncertainty domestically about Government policy and spending was influencing low business confidence and businesses' lack of investment. 

"Part of it is policy-related, part of it is that they are uncertain about what the policy environment looks like... all the range of changes that could come into play that they are not quite clear on how those things are going to play out.

"The economy has also been nearing its capacity constraints, if you look at the construction industry. More needs to be delivered, but it's been harder to deliver that."

He said there needs to be an economic stimulus, calling on more Government spending.

"Both central banks, the RBA and the RBNZ, are in the process of cutting interest rates further to try and stimulate growth. Whether that will work is a big open question because interest rates are already really, really low, businesses don't think interest rates are a constraint on their ability to grow," he told The AM Show.

"The main thing we need to focus on is Governments doing more, fiscal spending supporting growth.

"Everywhere in the world, central banks are running out of room, interest rates are phenomenally low, and what we need to see is Governments step up to the plate and do more, because they can afford to."

On Thursday, economist Shamubeel Eaqub suggested giving cash to "poor people" to spend to stimulate the economy.

"Right now what we need is fiscal stimulus, right? That's the big thing that's going to work," said Eaqub. "The Reserve Bank's monetary policy's impotent. It's not going to work. At these low rates, nothing matters."

Shamubeel Eaqub.
Shamubeel Eaqub. Photo credit: The AM Show.

Some economists back cash payments to the poor over other stimulus methods, such as tax cuts, because the poor have little choice but to spend it on things they need. 

This spending becomes income for another person, increasing their ability to spend too, so the overall benefit to the economy exceeds the Government's initial spending. Economists call this the multiplier effect.

Finance Minister Grant Robertson said on Thursday in Parliament that New Zealand was still outperforming comparable countries but it was natural international factors would impact us and businesses' inclination to invest.

"Many of them in the export industries are looking across the world and seeing there is a slowdown in the global economy. They are concerned about the orders that are coming through from offshore. This is common in a small, open economy like New Zealand.

"We are well-positioned to deal with this. We have low public debt, we have operating surpluses forecast, and we have unemployment at historically low levels. The New Zealand economy is in a good shape but we are facing global headwinds."