NZ's 'rock-star' economy has more in store, says expert

One of the underpinnings of NZ economic growth is the unexpectedly strong surge in net immigration, a key element of which is fewer New Zealanders leaving for Australia and more returning.

The rock-star economy will give an encore next year, says the economist who attached that label to New Zealand.

HSBC's chief economist for Australia and New Zealand, Paul Bloxham, expects growth to slow next year but to a rate that is still above its long-term trend and outperforms most other developed countries.

"You would be worried if you had a repeat in 2015 of growth that is well above trend because it would mean the Reserve Bank would have to lean against it even harder."

One of its underpinnings is the unexpectedly strong surge in net immigration, a key element of which is fewer New Zealanders leaving for Australia and more returning.

The flexibility afforded by a common labour market had been good for both countries, Bloxham said. Without the large net outflow across the Tasman during Australia's mining boom, New Zealand unemployment would have been higher.

But the relative strength of the two countries' labour markets has since switched. The Reserve Bank of Australia predicts annual employment growth of about 1 per cent, against 3 per cent here.

"There is no denying the [Australian] labour market is loose," Bloxham said. But it is an area bedevilled by unreliable data, with the household labour force survey subject to large revisions.

Employment growth last August was initially reported at around 100,000, he said, then revised down to 29,000 and subsequently to minus 5000.

"So the debate is whether it is stabilising or still worsening. Other indicators like business surveys and job advertisements say it is stabilising."

Australia's September quarter gross domestic product is due out today.

The market consensus is growth of 0.7 per cent, which would make just under 3 per cent for the year.

The desired rebalancing or pivot away from growth propelled by investment in the mining sector is under way, according to Bloxham, albeit with regional differences: New South Wales booming and Victoria doing okay, while Western Australia and Queensland are still coping with the end of the mining boom.

"In particular the housing market is still picking up strongly - a clear sign that lower interest rates have worked - and we think 2014 will record the strongest residential construction in 12 years."

Australia is enjoying strong population growth, which increases demand for services.

And both countries benefit from ties to the Chinese economy.

China's growth rate is slowing, "but it is still contributing the most to global GDP growth, even as it slows and the US economy recovers".