The Prime Minister went to Auckland yesterday, accompanied by his Deputy and his Minister of Finance, to deliver what is popularly billed as a “state of nation” address at the Auckland Rotary Club. I’m staggered that the Prime Minister could give such an address in Auckland and not once mention that house price debacle that his government, and the previous Labour government, have presided over, and done little to address.
But the bit of the speech that caught my eye was this
I’m proud that on the other side of the globe from the European capitals I visited a few weeks ago, New Zealanders have built a cohesive and globally competitive country that can provide valuable lessons to the rest of the world.
In recent years, New Zealand has dealt with the biggest financial crisis since the Great Depression, we’ve dealt with devastating earthquakes and we’ve made significant progress on deep-seated social and Treaty issues.
We now have a dynamic and diversified export sector,
In particular the suggestion that we have “built a globally competitive country” and as a result we “now have a dynamic and diversified export sector”. (I wasn’t too sure about the “valuable lessons” we can apparently offer to the rest of the world, but I’ll leave that aside for now.)
Statistics New Zealand typically advise that the best way to look at longer-term trends in components of the national accounts is to use ratios of the various nominal series. Doing so avoids deflator problems, and also recognises that prices – earned and paid – matter. Here is the chart showing exports – and imports – as a share of GDP.
Exports as a share of GDP are now below where they were when the Prime Minister was Minister of Finance/Treasurer in the last days of the Shipley government in the 1990s (and lower than at any time since then, under Labour or National governments).
In a thriving, globally competitive, economy one would more normally expect to see both exports and imports trending upwards as a share of GDP. For small countries that is even more important than large countries.
Out of curiosity I did dig out the data on export and import volumes and how they’ve grown relative to GDP. Here is the chart for the last decade.
Export volumes have certainly increased a little faster than real GDP has, and import volumes more so. But if the value of what we sell to the world (and then buy from it) hasn’t increased as a share of GDP, it doesn’t look like a particularly impressive story.
And finally, here is the chart I run every so often, showing an estimate of GDP broken down between the tradables sector (primary plus manufacturing plus export of services) and the non-tradable sector (the rest). And I’ve presented both series in real per capita terms. It isn’t a perfect proxy by any means, but it tries to get at the idea that domestic production for domestic consumption – especially in the manufacturing sector – is often exposed to global competition too.
In real per capita terms, this estimate of tradables sector GDP hasn’t grown in more than 15 years. The current estimated level is lower than the average for the 2000 to 2007 pre-recession period.
The evidence for this economy being globally competitive is slim at best. There are no doubt plenty of individual firms doing well, but it doesn’t add up to much, especially as the starting point – the initial share of exports (or export value-added) in our economy – was already so low for a country our size.
In part, firms seeking to export – or produce locally in competition with imports – have been battling uphill. The TWI measure of the exchange rate is around 79 this morning – on the Reserve Bank’s real exchange rate measure only around 5 per cent off the post-float peak. High real exchange rates can be a welcome thing, when they result from rapid productivity growth and the growing success of New Zealand firms in international markets. The high exchange rate rate then helps share the gains around. But that simply isn’t – and hasn’t for a long time – been the New Zealand story.
I’m not entirely sure why politicians come out and say this sort of stuff (“globally competitive”, “dynamic and diversified export sector”). It is particularly sad coming from the Prime Minister, who in his early years as Minister of Finance used to make exactly the sorts of points I’ve made in this post in speeches up and down the country: he was particularly fond of a version of the tradables/non-tradables chart. And the government has long had as one of its targets a material increase in the share of exports in GDP, suggesting that they knew there was something not quite right about New Zealand’s economic performance.
But now, almost nine years in, they seem reduced to simply making up lines like these, that perhaps might feel or sound good, so long as no one actually looks into them. Doing so discredits the speaker, and perhaps as importantly it further cheapens and debases political dialogue and debate. Bill English should be better than that.