HSBC economist Paul Bloxham is suggesting ways New Zealand could reclaim the former superstar status he bestowed upon us

The economist who made headlines 10 years ago by styling the New Zealand economy as a 'rockstar' is suggesting how we could reclaim that mantle.

Paul Bloxham, HSBC's chief economist for Australia and New Zealand has titled his latest economic comment: "How to be a rockstar again."

Previously Bloxham caused something of a sensation when he predicted that New Zealand would be the rockstar economy of 2014.

He says now that in 2014 New Zealand's GDP growth turned out to be among the strongest across the OECD economies.

"The economy had a lot of things going for it. Dairy and meat exports were strong, as Asia's middle classes expanded. This was helped along by a free trade agreement with China, with New Zealand the first developed economy to sign one. Tourism was booming. Reforms delivered after the Global Financial Crisis, including to the tax system, were helping. A pro-growth trading partner focus was supporting the economy. Growth was also supported by the Christchurch rebuild."

But that was 10 years ago. Since then, "the growth picture has not looked nearly as pretty". The COVID-19 pandemic led to border closures which, while a powerful tool for protecting the population from the virus, "clearly disconnected the economy from the world across many dimensions".

New Zealand's economy has therefore had tough times.

"To get inflation down the central bank [Reserve Bank] opted for significant monetary tightening, acknowledging that it was likely to drive the economy into a recession. The economy has been weak for two years, with multiple 'technical recessions' during that time and the unemployment rate rising tangibly. Thankfully, inflation is also heading back to target. This has allowed the RBNZ to cut its cash rate recently, and we expect it to cut further in coming months. Growth should get decent support into 2025. Could New Zealand revive its 'rock star' status? Now is the time to do reform to help," Bloxham says.

He says policymakers ought to focus on New Zealand's global 'growth engines'.

Many of the fundamental, structural drivers that create global opportunities for New Zealand's small open economy are still there. Asia's middle class incomes are rising, diets are shifting and demand for higher quality food continues to trend higher. Global tourism is growing, recovering from the pandemic, and Asia is leading the way in driving this.

"The key is to aim to lift local productivity and lower local costs to look as attractive to investment as possible, including for foreign capital.

"A part of this involves addressing New Zealand's infrastructure deficit - the planned new National Infrastructure Agency may help deliver on the current NZ$148 billion infrastructure pipeline, as well as directly help attract foreign investment and ensure a longer-term, better-coordinated approach to infrastructure is adopted. On agriculture, a focus on land-use intensity, alongside a move to higher-productivity agricultural products, such as poultry, aquaculture, or plant-based foods, offers an opportunity for productivity gains.

"Recent policy changes to the Overseas Investment Act may also help, having lowered barriers to foreign investment."

Bloxham says encouraging more competition is also key.

"On competition policy, building upon the findings from the recent Commerce Commission market studies may help improve general competition law, which could be complemented by directly reducing barriers for business entry including reforms of the Resource Management Act and zoning regulations."

And, finally, Bloxham says climate change policy is a key challenge, particularly given New Zealand's methane emissions.

"The Climate Change Commission's first national adaptation plan progress assessment found that adaptation is not happening on the scale, or at the pace, that is needed. Policy to address the recommendations in the report may help. Reforming the Emissions Trading Scheme (ETS), with a focus on reducing available units, should also help the market naturally work towards net zero emissions at the lowest cost. However, the recent removal of agriculture from the ETS risks slow progress in reducing methane, which is New Zealand's largest emissions challenge."

Bloxham says that as fashions change, rock stars often need to change their tunes - lest risk being a 'one hit wonder'.

"New Zealand's policymakers should aim to make the economy as flexible and competitive as possible to best grasp the global growth opportunities that are available."