Inside Money: Optimist economist unwinds in NZ

Bob Baur, chief global economist at Principal Global Investors. Photo / LinkedIn

Bob Baur is chief global economist at Principal Global Investors.

There's a lot of global going on there but Baur, who made a whistle-stop tour to New Zealand last week, earns his keep thinking big about world affairs.

In his latest client note, headed 'Great unwindings', Baur peddles the same generally optimistic message he presented to New Zealand investors.

While there are undeniable global tensions (see the world getting wound-up about Greece), he says the medium- to long-term outlook is positive, particularly for the developed world.

Baur's main points conclude: the China investment boom is over, which will affect emerging markets more than the US and Europe; rising labour costs have reduced China's competitiveness with many US companies (and even Chinese ones) now shifting production back West; developed world (especially in the US) middle-class income and debt pain could have bottomed-out which implies greater spending power in the years ahead, and; commodity prices have reached the end of the 'super cycle'.

The final point is of particular relevance to the New Zealand economy, which has earned alleged 'rock star' powers on the back of its cow-based products.

Baur says the commodity price declines are likely to be "structural" rather than cyclical: that is, commodities could be in the doldrums for a decade or more, rather than perk up in a few months.

"In general that [low-price] trend applies to all commodities," he told me. "Although, foodstuffs could be different - it's possible they could be more resilient."

That tentative optimism could, however, just be Baur revealing his roots. He grew up on a farm (and, indeed, talked at length to me about the hog-corn relationship).

But he's also upbeat even about the prospects for Europe in the medium-term as the low Euro and falling energy prices could dispel some of the continental gloom.

Nonetheless, in the short-term Baur says markets are likely to be volatile as the global unwinding ticks on.

"In the near-term I wouldn't be surprised to see a correction of 10-15 per cent in equity markets," he says in a rare display of global pessimism.

David Chaplin is editor of investment industry website Investment News NZ.