Reading the Herald over lunch, I found a piece by Paul Bloxham (of HSBC), author of the original “rock star economy” description, defending his image. The sub-editors headed it “NZ’s economy still moves like Jagger”.
Personally, I am enough of an old fogey that “rock star” summons up unwelcome images of dissipation, licence, and worse. I’ll take Bach or Handel any day. But, anyway, Bloxham insists that New Zealand is some sort of “Nirvana” (apparently a rock group, that ended badly – and, yes, I did have to look it up). I’m not sure where lingering high unemployment fits into his story, or weak growth in productivity or per capita income. Yes, there are many places worse off than New Zealand, but as I’ve been illustrating over the last couple of weeks many have been doing better.
Bloxham seems to focus on growth in total GDP, and certainly many OECD countries have much weaker growth than New Zealand has had. But they also typically have very low population growth. Our population growth is normally faster than that in the rest of the OECD, and has accelerated rapidly in the last year or so. On the latest SNZ estimates, our population is up 1.8 per cent on last March. That might be good or might not – perhaps less good if a lot of it just reflects New Zealanders not going to Australia because unemployment is also high in Australia. Per capita real GDP growth just has not been that strong, and per capita income growth looks likely to slow even further as the terms of trade fall.
Bloxham is also convinced that demand is strong. But rapid population growth tends to lead to rapid demand growth – more people need accommodation, cars, other durables, and just the regular stuff of life (food, clothing etc). SNZ’s quarterly population series only goes back to 1991. But in the period since then there have been three episodes when annual population growth got up to at least 1.6 per cent – in 1996, over 2002-2004, and the last couple of quarters. Population growth rates and growth in domestic demand are quite strongly correlated. Here is how domestic demand growth (GNE) has been in each of those episodes (I’ve used aapcs for GNE, but the fall-off in the noisier apcs is even sharper). Domestic demand growth has been much weaker over the last year than in the previous high population growth episodes, even though this time we have a large exogenous boost to demand resulting from the Canterbury earthquake rebuild.
As I noted on Saturday, it is not that demand has been so strong, and supply has grown even faster to meet it. It is more case of rapid population growth, and some additional domestic labour supply growth (similar to that in other OECD countries), being accompanied by unusually weak growth in domestic demand.