The Reserve Bank may lift interest rates as soon as July as the New Zealand economy outperforms expectations, says HSBC economist Paul Bloxham.
Sydney-based Bloxham, who grabbed headlines when he dubbed New Zealand the "rock star economy" in 2013, is sticking with the theme in his 2018 outlook report.
His upbeat view of New Zealand's economic prospects includes a forecast that the Reserve Bank will be forced to lift interest rates from 1.75 per cent in the third quarter of the year - several months earlier than most local economists are predicting.
The high interest rate track would flow through to the value of the Kiwi dollar which could be as high as US75c by the year end, Bloxham said.
In his report The rock star has new managers Bloxham recognised that the new government and a new Reserve Bank Governor added some uncertainty to the New Zealand story.
But since the election "the clarity of the new government's political agenda" had improved, he said.
That was reflected in a reversal of the New Zealand dollar's fortunes in the past few weeks.
There were challenges including a drop off in business confidence and risks around an immigration slowdown and a cooling housing market.
Business confidence had experienced a slump post-election and a risks remained if further policy uncertainty emerged.
But that slump appeared to be driven by "supply side" concerns, he said.
In other words, while there were worries about labour supply and costs if migration stalled and inflation rises, there was no suggestion that business was facing a drop in demand for goods and services.
It was also likely that the new government would mean a "bigger fiscal party" with increased spending in infrastructure, health and education Bloxham said.
New Zealand's prospects needed to be viewed in context of a much stronger global economy in 2018, including the rebound of its biggest trading partner Australia, he said.
So while the stronger Australian labour market could see a reversal of the recent trend for migration flows into New Zealand it remained an overall positive for New Zealand, he said.
"We're looking at the most synchronised upturn in growth globally since the GFC," Bloxham said.
Global forecasts are for a solid growth in the US, Japan and Europe for the first time in almost a decade, and continued growth in China.
That would translate to multi-national companies taking a more expansive view on investment.
It was also boosting commodity prices which was driving growth in Australia, particularly in resource states like South Australia and Western Australia that have underperformed for several years.
All of these factors suggested we would see upward pressure on inflation, including wage inflation, Bloxham said.
With New Zealand's inflation rate already close to the Reserve Bank's 2 per cent target that would put the pressure on to lift rates.
New Reserve Bank Governor Adrian Orr's view on inflation was another uncertainty.
Bloxham said he did not expect to see the RBNZ lift rates until the Reserve Bank of Australia (RBA) had moved.
But he was forecasting the RBA to lift rates in the second quarter of the year and the RBNZ to follow.
HSBC now has New Zealand's official cash rate rising to 2.5 per cent by the end of 2019, implying three hikes.
The Reserve Bank's November Monetary Policy Statement included central projections for rates to stay on hold until at least the end of 2019 - although the market expectations are for an earlier move.
ASB's last quarterly forecast picked a first hike in March 2020. Westpac forecast a hike as late as December 2020 and suggested any earlier moves could be cuts if economic conditions deteriorate.
Revised forecasts from local economists are due soon and may factor in the improving global outlook.
The cooling housing market could provide a head wind to rate hikes but Bloxham said he did not see a major slump as likely.