The Global Outlook

Paul Bloxham does not deal in false comfort. HSBC's Chief Economist for Australia and New Zealand opened with a blunt read on rates. "We think the economy is already in enough of a downturn that the RBA is unlikely to lift interest rates any further," he said, though "inflation, of course, is still too high, and that is the primary concern." The signs of a slowdown are clear: "We have seen employment start to fall, the unemployment rate rising, and the housing market cooling quite quickly."

Globally, though, the story is endurance. "The surprising thing is actually just how resilient the global economy has remained," he said, with growth holding near 2.8 per cent. He offered two reasons. The first was political: "Despite all the things Trump said he would do, he did not do most of them," the "taco trade" in market shorthand. The effective United States tariff rate settled at eight per cent, not the thirty or forty feared.

The second was the theme of the evening. "The AI story has just proven to be a bigger driver of markets." More than half a trillion dollars went into United States data centres last year, he noted, accounting for half of all United States GDP growth. The spillover reached Asia: "In the first quarter of this year, Taiwan had its fastest annualised growth in 39 years, because of the demand for semiconductors and chips."

Australia, Bloxham argued, entered this turbulence poorly positioned. Inflation on the RBA's preferred measure runs at 3.5 per cent against a 2.5 per cent target not met for four years. The deeper problem is capacity. "Productivity growth is dismal," he said. "The economy is growing too fast for its capacity to grow. The speed limit is lower than it used to be." His conclusion was uncompromising: "We are already in the downswing that, in principle, we kind of have to have in order to get inflation to come down."

On the data centre boom closest to the room, he urged realism. Australia's pipeline is vast, near 3.5 per cent of GDP, second only to the United States. Yet the near-term dividend is modest. "Eighty-five per cent of what goes into the construction comes from offshore," he said, and the operators are largely multinationals, so "the profits from the token sales are probably going to mostly go offshore." The way through is adoption, not construction: businesses applying AI "to lower their cost base and improve their productivity."

He reserved his sharpest word for the budget, which he cast as redistribution rather than reform. Asked to brief the Treasurer, economists pressed for a more efficient tax system: "Lower the corporate tax rate, lower the personal income tax rate, lift and broaden the base of the GST. That is not what we got." Asked what a Canberra run by economists might resemble, his answer was a single word: Singapore.