Exports, as seen from the 2009 Budget

Michael Reddell Exchange rate, Exports

I was exchanging notes with someone earlier this afternoon about how the government has lapsed into blather and “making it up” in so many areas.  I was pointing out how doubly sad it was because when the government had first taken the office, the then Minister of Finance –  now Prime Minister –  seemed to have a real concern about some of serious underlying imbalances and indicators of underperformance.  I used to help provide material to his office in support of that.

It is hard to track down old ministerial speeches that far back.  But take the 2009 Budget speech as just one example.  The Minister of Finance said

Indeed export volumes have on average grown by less than 2 per cent annually over the past five years. It has been hard being an exporter in recent times.

noting that

in the long term New Zealand must balance its economy in favour of more investment and jobs in internationally competitive industries.

So how has New Zealand done since?

English on exports

The Minister delivered this speech in May 2009, so presumably the latest data he had available was that to December 2008 (right at the worst of the recession).  In the five years to December 2008, export volumes had indeed –  even with subsequent data revisions –  increased by a bit under 2 per cent per annum.

Export growth had certainly been falling away quite sharply over the previous few years, and those peak growth rates from the five years to 1995 (almost 8 per cent) and to 2003 (almost 6 per cent) were distant memories.  But perhaps a fairer benchmark might not be growth rates to the depth of the severe recession, but perhaps in the five years to the end of the boom.  That seems doubly so because the Minister was arguing that the boom had been severely unbalanced, an opportunity wasted etc.  In the five years to December 2007 (the last pre-recession quarter) export volumes had grown at an average annual rate of 2.7 per cent.

And how are things now?   In his Budget last week, the new Minister of Finance asserted that

Under the Government’s strong economic leadership, New Zealand is shaping globalisation to its advantage.  We’ve embraced increased trade, new technologies, innovation and investment.

In the last five years, export volumes have grown at an annual average rate of 2.83 per cent.   It is a little better than those five years to December 2007.   But if 2.7 per cent annual growth was unsatisfactory, it must be hard to regard 2.83 per cent with equanimity.   Average export growth rates have been much lower under this government than under its predecessor.    Not exactly “shaping globalisation to our advantage……embraced increased trade”.

Now, of course, exports aren’t everything, and we only export so that we can import.  But it is a pretty meagre result.  At least back in 2009, the government could face the challenges squarely (they happened on someone else’s watch).   By now, eight years on, all they seem to have left is falling back on rhetoric, and hoping no one notices the data.

As the (now) Prime Minister noted in 2009, it had been “hard to be an exporter in recent times”.  The real exchange rate had increased a lot during those boom years.    In his 2009 Budget speech the Minister was welcoming the sharp fall in the exchange rate.  Unfortunately –  given the lack of sustained productivity growth to match –  that proved rather fleeting, and it has averaged just as high in the last seven years or so, as it did in the last few years of the previous government’s term.

rerReal exchange rates aren’t things that ministers or governors directly control.  They reflect the balance of (tradables vs non-tradables) forces in the economy.  That balance here –  still –  makes it hard to manage much export volume growth from New Zealand.

 

 

17 thoughts on “Exports, as seen from the 2009 Budget”

  1. The nature of the exports have changed from agricultural based where only 30% is available to be spent within the local cummunities to international students and tourism basedhich is service based where100% is spent in the local communities. The impact to local GDP is 3 times what is was previously under a agricultural based export previously. Service based exports is more labour intensive. More service exports come hand in hand with more migrants. Economists forget that tourists and international students are foreigners and therefore eat foreign foods and need to be serviced by foreign speaking front desk reception, waiters and bus drivers.

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    • Cheap and nasty foreigners such as the down market English in Spain may demand their beer and chips in English but NZ costs an investment of time and money just to get here so our tourists are of a higher standard and they want a NZ experience.
      My neighbourhood is full of delightful ethnic restaurants but not tourists. NZ ethnic restaurants are generally located exactly where the tourists don’t go.
      You under-estimate the ability of Kiwis to learn languages if they are paid to do so (chat to anyone in the Airline industry).
      Where you are right is if you have a sudden expansion of tourism then you have a sudden demand for people willing to work anti-social hours doing menial jobs (cleaners, evening and night and weekend work) and in a competitive market they need to be paid peanuts.
      Why is NZ tourism booming? It would be lovely to think the rest of the world having destroyed their own environment have suddenly discovered NZ’s beauty and clean air. However that is not the case. It is partly the increase in disposable income of comparatively close countrys the other side of the equator, partly fracking making air fuel cheaper and partly terrorism in Europe and the USA driving tourists to look farther afield. Without terrorism all those cruise liners will return to the Mediterranean.

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      • Are you saying all these ethnic restaurants are full of local pakeha patrons? Or are you saying all those patrons are local migrants? How do you tell the difference between a foreign tourist and a local migrant? They speak the same language and they look exactly the same.

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      • In other words, you don’t really know. But you do know that tourists and international students will spend between $15billion to $20 billion in NZ. A big chunk of that will be in restaurants. Frankly there isn’t that many local kiwi restaurants. Most will serve ethnic and foreign food or partially foreign food. So why would you conclude that it is migrants and not the tourists and international students? Did you speak with the patrons to determine their nature? Or did you just assume?

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      • Migrant families do not usually eat out. Like any family they have a budget. They will shop in supermarkets and they cook at home. Eating out is a luxury most migrants cannot really afford on a daily basis. Perhaps once a week and that’s it. Tourists will dine out trying out all the restaurants.

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      • Bland” and “boring” Kiwi meals are driving Asian international students to the food halls. Eating out at food courts and restaurants is found to be the most popular activity for international students. In a study of international students’ travel patterns, behaviours, motivations and expenditure, 60.6 per cent listed eating out as their most frequent activity while in New Zealand.

        “Westerners bond over drinks, but we like to have a chat and bond over food. Eating food from our homeland also helps us overcome homesickness.”

        http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10631186

        George, you are wrong. There are 80,000 international students in NZ spending $4 billion. Most of that chunk of change will go into ethnic restaurents and not into bland and boring kiwi meals.

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      • What do you mean by migrant? I’m a migrant myself as is the Scot I met last week – he has been here (63 years and retains his accent) I haven’t noticed any camper vans or hire cars so I assumed the other customers were like myself immigrants or Kiwis. Certainly with the restaurants we frequent there are many Asians but they look like local families to me. Judging by the children and elderly I’m guessing they are not students or tourists. But there is a big range so I’m sure some will be students and even some tourists although when I was tourist myself I rarely dined out in the suburbs a long way from my hotel especially at restaurants that close about 9pm. Birkenhead has very little tourist accommodation.
        .

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      • That’s not correct Bob. A Air BnB search in Birkenhead today shows that there are 202 residential properties available in Birkenhead for tourists. You may not be aware but tourists do have families and do travel as a family group as well. They are indistinguishable from migrants.

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  2. “Under the Government’s strong economic leadership…”. What do you expect a politician to say?
    Language doesn’t carry much meaning without context (a lesson learned by attempts at computer translation). A listener to a Prime Minister is not expecting a clear economic analysis merely the fact that he is concerned about the subject he is talking about – in this case ‘economic leadership’.
    When we watch the rugby will the NZ commentators be precise, dispassionate and unbiased?

    As an economic illiterate I wonder if I and all the other middle-aged Kiwis had been persuaded to put their savings somewhere where the money would increase investment in NZ exporting businesses rather than into buying Auckland property then exports might have gone up and indebtedness to foreign banks down.

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    • Two points in response:

      I have no real objection to politicians of any stripe claiming “strong economic leadership” – my objection to the quote was to the claims suggesting NZ had done well in say increasing its pentration into foreign markets etc, and was simply contrasting those claims and the current data, with the (quite specific) concerns his predecessor had run in his own Budget speech only 8 years previously.

      (Personally, i always do prefer my sports commentator precise, dispassionate and unbiased – sad person, perhaps, that I am!)

      Remember that, for its population, NZ has too few houses not too many. Me buying your house for some astronomical sum simply changes ownership, it doesn’t absorb any new savings from a whole economy perspective. All else equal, lower company tax rates (and taxes on capital income), lower real interest rates and a lower real exchange rate are the path to the sort of outcome you are seeking. The latter two are most likely to be achieved if our population were nearer flat than growing 2% pa.

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      • I think I understand your point. Someone buys a property I own and I make a profit on what I paid – the buyer may have borrowed money to make the purchase and that money may have come from overseas but on the other hand I have the money from the sale to do with as I want. Is that what is called a zero sum game. My argument might apply to spending money on home improvements or spending on say holidays whereas for the good of NZ exports I ought to be buying shares in vineyards.
        BTW: if NZ population grows by 2% then most of it ends up in Auckland – say 4% growth in Auckland; that explains why everything is changing so fast and to so little effect. It was nicer in 2003.

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      • NZ has too few houses because old people are living longer and tourists are overflowing into residential property. The hotel and motel industry is not happy with the Phill Goff bed tax because Air BnB clients are not subject to the same bed tax. They claim it is illegal to pass the costs onto customers but its more because they are competing with an increasing number of residential property offering through Air BnB and therefore unable to reprice upwards when the competition is offering lower prices.

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      • The bed tax is a dumb tax. It does not maximise revenue. The tax should be a Auckland airport tax. Auckland airport has 18 million inbound and outbound passenger traffic. A $10 congestion tax would raise $180 million which can help pay for monorail from the airport.

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  3. 2009 was a bad year with NZ languishing in a pretty bad recession engineered by Alan Bollard and the RBNZ between 2006 to 2009. The OCR was driven to 9% which pushed up residential floating interest rates to 10% and Commercial lending interest rates to 12%. This lead to the complete decimation of an entire building industry, with dominoes into the obliteration of 61 finance companies providing risk financing and the loss of $6 billion in mum and dad investor funds.

    Th NZD is high due to the high interest rates engineered by the RBNZ. You cannot run local interest rates higher than your trading partners without expecting a massive inflow of foreign hot money looking for yield around the world. In 2009, the Uridashi bond market was a massive $25 billion trading in NZD.

    The NZD is the 10th most traded currency in the world with Chinese Yuan as the 9th. There is no real fundamentals with NZD trading volumes other than speculation and interest rates. International students and tourists buying NZD to the tune of $20 billion for their daily spending and the milk and other exports of $60 billion on NZD does provide some support for the NZD. But does not justify the $500 million to a billion traded every single day.

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