A very strong economy driven by the strong economic plan?

The latest quarterly GDP data came out just before Christmas, and they included substantial revisions to the data for the last few years, flowing on from the annual national accounts data released in November.

The actual level of GDP is now a bit higher than had previously been reported, but what caught my eye was the reported claim from the former Minister of Finance, Steven Joyce, that the new data suggested that there was no productivity growth problem after all.   You’ll recall that for some time I –  and others –  have been highlighting data suggesting that there had been basically no productivity growth at all in New Zealand for the last five years.

Here was Steven Joyce’s specific claim

Mr Joyce says the figures released today finally put to bed the fallacy that New Zealand was having a ‘productivity recession’.

and he went on to claim that

“These figures provide clear confirmation that the new Government has inherited a very strong economy driven by the strong economic plan of the previous Government.

So what do the productivity numbers look like on the revised GDP data?  You may recall that I’ve been calculating nine different measures of real GDP per hour worked (using the two quarterly measures of GDP, and the HLFS and QES hours data, and an average measure).    Since GDP for the last few years had been revised upwards and the hours numbers weren’t touched, productivity growth was inevitably going to be a bit stronger than previous estimates had suggested  (which was a relief, because the previous estimates had, if anything, suggested a modest fall in the level of productivity and that didn’t really ring very true).

Here is how the average measure of real GDP per hour worked has behaved over the almost 10 years since 2007 q4 (just prior to the 08/09 recession).

GDP phw worked NZ Jan18

Over the last 10 years (less one quarter), total labour productivity growth has been 6 per cent.    Over the last five years, New Zealand’s total productivity growth has been 1 per cent (ie about 0.2 per cent per annum).   It is a little better than the previous iteration of data has suggested, but……it isn’t much to boast about.

Using the same average measure, I calculated the average annual rate of productivity growth for a few historical periods:

  • Under the National-led governments in the 1990s,  average annual productivity growth was 1.2 per cent (quite dismal enough, given how far behind we had slipped),
  • Under the Labour-led governments of 1999 to 2008, average annual productivity growth was 1.0 per cent,
  • Under the National-led governments of 2008 to 2017, average annual productivity growth was 0.8 per cent, and
  • (as already noted), over the last five years, average annual productivity growth was 0.2 per cent per annum.

And here is the comparison with Australia, on the newly-updated New Zealand data.

AUs and NZ reaL gdp PHW

Australia’s numbers seems to have been flat for the last couple of years, but even over that short period we’ve done a bit worse than they have.

If these results are what Steven Joyce had in mind in talking of a “very strong economy driven by the strong economic plan” one can only really shake one’s head in despair.   If there was a plan to lift overall productivity performance, it clearly didn’t work.  Economic policy was simply misguided, and seems to have paid no attention to the severe limitations of our location.   Perhaps more depressing –  given that Joyce and his colleagues are in Opposition –  is that there is little sign that the new government has any more convincing a strategy  (and where is the deeply-grounded persuasive advice of MBIE and Treasury?).   One hopes –  but is that just against hope –  that they care.

On more mundane matters, I had cause to wonder about even the cyclical strength of demand when, over the holidays, one evening my wife and I walked from Epsom to Parnell and back, and were staggered by just how many empty shops there were in both Newmarket and Parnell.    Any reader insights into just what is going on (or not) in those up-market shopping districts would be of interest.


24 thoughts on “A very strong economy driven by the strong economic plan?

  1. I live in Newmarket, and haven’t really noted a larger than normal turnover. Westfield has actually started construction (or demolition for it) of a mega mall between Morrow St and Clovernook road, so perhaps some shops were closed for that. The “277” mall is closing in 2 or 3 weeks to be upgraded.


    • Don’t be too surprised if the Mega Mall never gets built

      Westfield have just sold the lot, lock, stock and barrel, and secondly, Mega Malls need convenient mega car parking facilities to get the foot-traffic in. Where they going to get that from

      Liked by 1 person

      • That’s good news. Traffic was bad enough already. Had a look out there this morning, and they have just about finished demolishing the block beside 277.


  2. Talking with retailers it would appear that online sales are having a significant effect. I spoke with several who commented that this was their worst Xmas ever with all of them citing internet sales as the culprit. I guess that’s one source of productivity/creative destruction…


  3. Could it be that as house price increases have outstripped wages and salaries increases by a considerable margin over the last five years, people’s reduced disposable incomes have contributed to the fact that retail sales have been in the doldrums?


    • It could be that structural problems in the housing market (and possibly/probably elsewhere too -not related to the structural problem of location) which is causing the productivity recession problem.

      Certainly despite the enormous amount of time and energy taken in negotiating the Unitary Plan and other recent transport, housing and urban development (THUD) initiatives by both central and local government the housing market in Auckland in particular remains quite dysfunctional.

      For instance, the Unitary Plan has lost 25% of it feasible capacity in just one year, as I report here
      View story at Medium.com

      The new THUD Minister Phil Twyford will need to be aggressive in implementing his reforms to turn this situation around.


  4. Another way of looking at the housing problem is it is a problem of residential mobility -or a lack of boomtowns.
    View story at Medium.com

    NZ kind of is a boomtown, but it is immigration fueled at the same time as there is mass emigration of locals away from NZ -indicating the people who are most informed about NZ cities, do not find them economically attractive.

    Fixing the attractiveness of NZ cities from a THUD perspective could change the economic trajectory of NZ’s economy.


    • I’d like to believe you are right – and of course, I generally agree with you around housing and infrastructure policy – but the stylised facts seem to be against you. After all, Akld has had staggering population growth rates going back decades (and forward to now), so it isn’t as if people can’t get into the place. But even from among the many who have located in Akld very few successful outward-oriented industries have developed. And altho NZers haven’t been moving to Akld (net), it doesn’t look as though house prices have decisive even in that choice – after all, in large numbers they have moved to Australia, and at least in Sydney and Melbourne (perhaps not Brisbane) housing has been about as unaffordable as in Akld.


      • Michael statistically the most popular state in Australia for kiwis is Queensland. Brisbane certainly is more affordable than Auckland wrt house prices/rents. It also has a much better transport system. Meaning Brisbane offers more affordable access to a larger agglomeration economy than Auckland.

        Auckland has long had an economy based on a rentier economy of subverting government regulations to benefit the few not the many, capital gains, boosterism wrt immigration fueled booms, head offices for uncompetitive monopolies/duopolies etc. The Auckland business community probably needs to take a long hard look at itself.

        Historically the worst example is Thomas Russell (founder of the BNZ and legal firm -Russell McVeagh) war profiteering.

        150 years later and NZ is still paying for his (plus government mates) devious machinations through Treaty of Waitangi claims, worse race relations and higher inequality than it needed to be.


      • Fair comment on the Qld numbers, altho there are as many NZ-born in NSW+Vic as in Qld. The interesting question is whether much in the way of agglomeration gains are occurring in Brisbane, and especially whether it is occurring in outwar-orientend industries (or is Brisbane to NZers what Akld is to our migrants). Hard to think of major outward-oriented industries based in Brisbane.

        Re Akld, I guess my take is a little less judgemental: I’d say people in Akld have simply responded to incentives that have arisen from the choices over many decades of successive govts. It isn’t obvious that, given those constraints,incentives, the AKld business community could do much better than it actually has.

        Liked by 1 person

      • Michael I am not sure if I can conclusively/empirically prove that kiwis (or others) moving to Queensland/Brisbane are more productive because they are part of a bigger yet more affordable agglomeration economy. Brisbane in comparison to Auckland being a more populated metropolitan area (2.4million), that more people have access to on a daily basis, due to Brisbane’s better transport system and that is more affordable wrt house price/rents.

        But, I do note that according to your productivity graphs Australia continues to have an edge over NZ, yet Australia’s location and immigration rates is not markedly different to NZ’s. So is the location/immigration story really the structural explanation for NZ’s continued poor economic performance in comparison to Australia’s? Or do we need another/more structural economic explanations?

        It probably was unfair on Auckland to blame some skeleton’s in its closet for its poor performance, probably everywhere has some aspects of its past which they would like to keep in the past. Certainly Brisbane/Queensland in the past had corruption issues.

        Theoretically at least I am on strong ground arguing the agglomeration/urban planning/housing/labour market mobility story. I think David Schleicher the Yale Law professor in my Boomtown article argued the general case better than I can.

        But for my specific case explanation, if Aucklanders look at the cities agglomeration economic incentives -current house prices and transport networks make it unattractive for newcomers -both businesses and workers. The newcomers which do come may therefore be of lower quality. Further, a higher proportion of these newcomers wages/profits are being sucked into the unproductive rentier economy of high land/property/rent prices, which means a lower proportion is available to be invested and consumed in the productive economy. Finally because the productive city economy is growing slowly there is a smaller tax base available to be reinvested in public infrastructures -like transport networks which otherwise would be available to boost the effective size of the productive economy which newcomers have access to.


      • Certainly wouldn’t disagree that NZers who move to Brisbane (or Sydney or Melbourne) are more productive than if they’d stayed at home – in the sense that the market value of their production is higher. In the same way, Chinese or Indians who move to Akld typically earn more here than at home (that is part of the open borders case). But the question that is more relevant to the housing supply/infrastructure issues around Akld, isn’t whether Akld GDP pc is higher than that of Delhi, but whether by attracting more people into AKld (whether from elsewhere in NZ or abroad) Akld’s own GDP per capita is raised I don’t think there is much sign of that being likely, and the gap between AKld’s GDP pc and that of the rest of the country is quite small, so that even if somehow lots of NZers now found moving to Akld affordable, it isn’t obvious they would be much better off. The situation in, say, San Francisco is a bit different – GDP pc is so much higher than that in much of the rest of the country, that it looks as tho many people would be better off (a lot better off) if they could move to SFO.


  5. Haven’t got time to read all the comments, Michael, so apologies if doubling up, but in America physical retail stores are closing at historically high rates, with that being put down to people buying so much online, and many stores not being able to compete with the likes of Amazon. I suspect that must be the same over the first world.

    In our own household, outside food, we pretty much buy everything online now, including clothes and wine.


    • You may be right about the role of online, but there were a lot more empty shops in Newmarket/Parnell than I noticed in Whakatane or than I find on Lambton Quay (or, actually, than we noticed walking Ponsonby Road the followinng morning)..

      Perhaps there was just an element of chance, and it is simply a single anecdote but it took us a bit by surprise.


    • We are the opposite – we are buying less food in the supermarket because we buy meal ingredients online like Bargain Box, etc. I don’t think it saves any money but I’ve certainly enjoyed the meals.

      This might be typical as I saw some stats that NZers buy less electrical stuff online that the average in the UK and US, etc. As Michael says, there are no signs around Wellington that retail is suffering.


    • Just been to Rome. Marseille, Barcelona, Palma de Mallorca, Palermo and retail shopping and restaurants look pretty full with revellers. Zara and H&M are huge stores in these cities.


  6. A different point of view
    It’s who controls the distribution – retailing is distribution
    The smart money is getting out

    The grocery chains learned their history lessons well. The Chinese have learnt their history lessons well. From Anthony Sampsons book “The Seven Sisters”. In 1850 John D Rockefeller demonstrated that “owning” the distribution of oil was more powerful than “owning” the production of oil. The same lesson was played out again in 2006 in the dispute between Russia (producer) and Ukraine (distributor) over the means of distribution of Russian gas. Russia capitulated in one day. The same contest exists in the search engine space. The product is incidental. Fonterra, an organisation that is larger than the largest company on the NZX displays the same characteristics. It doesn’t own farms. It controls the means of distribution

    Lowy Exits Westfield for $32 billion

    Murdoch exits 21-century-Fox and 20th-Century Fox
    Murdock sees writing on the wall against Technology giants Apple and Amazon

    “Growth for Twenty-First Century Fox, with its mix of traditional cable networks and movie labels, would be increasingly difficult to deliver as technology giants like Apple and Amazon pushed deeper into the film and television industries, changing the way people access entertainment. Netflix was already becoming big enough to outbid Fox and other old-line entertainment companies for scripts. Facebook was coming after sports rights”

    Amazon is now getting into “home branding”
    Home Brands have been perfected by the Supermarket Chains – saying to suppliers – if you want to use our distribution chain you have to package it up with our Supermarket Home Brand labelling – and it goes on the shelf at half the price of the “known named brands” – and this is the price we will pay you for it – take it or leave it – pal


  7. Having said all that, and having lived in Auckland for many years, I always found Newmarket a difficult place to get into and out of for shopping. Its been a while. Has that situation changed?


    • If you are talking about the lack of parking in Newmarket, try parking in Rome or Marseille. They park just mm apart in any direction.


  8. In Rome, the lack of public toilet facilities force you to buy and spend in restaurants. Having to pay EUR4 for a 250ml can of Red Bull just to use the toilets at the Coliseum adds to productivity and profits for the shops. Also at the railway station it costs EUR1 to use the public toilet which is coin operated gated barriers.


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