Our rather moribund economy

The quarterly national accounts data were out yesterday.  They made pretty underwhelming reading.

There was the (rather modest) growth in per capita GDP

pc GDP mar 18

This expansion –  dating from around 2010 –  has been quite a lot weaker than the previous two growth phases.  In the chart you can see that almost every peak for the last 25 years has been lower than the one before.   And for the last year – full year 2017 over full year 2016 – we managed only 0.8 per cent growth in real GDP per capita.   Growth has been slower than that only in the midst of the last two recessions.

At least real per capita GDP grew, you might say.  But hours worked per capita (whether measured by the HLFS or the QES) grew by a touch over 0.8 per cent over that same period.  In fact, there was no growth in labour productivity at all.

Here is my standard labour productivity chart, averaging the different possible combinations of QES and HLFS hours data and production and expenditure GDP data.

productivity mar 18

There has been no productivity growth at all in the last year, and in the last five years ( the grey line relative to the orange line) average annual labour productivity growth has been only around 0.3 per cent per annum.   And this in an economy that the previous government liked to boast –  and the new government seemed happy to concede –  was doing pretty well.  Productivity growth is the only sustained basis for long-term improvement in material living standards.   We have very little of it –  even as we start so far behind most other advanced countries.

Perhaps our firms have been managing more success in taking in world markets?

There was bounce in the terms of trade –  dairy prices were improving –  so nominal exports as a share of nominal GDP did improve.

x share of gdp

Unfortunately, it looks like another of those series in which each peak is a bit lower than the one before it.    And services exports –  the wave that was much talked of a year or two back –  look to be dropping away again.  Exports of services –  often talked of as the way of the future –  first got to the current level (share of GDP) in 1998.

I don’t often show charts of export volumes.  As a share of GDP such charts aren’t very meaningful.  But one can compare growth rates, in this case for the last decade, since just prior to the 2008/09 recession.

x and gdp real

Over the decade as a whole, export volume growth has barely kept pace with the unimpressive growth in real GDP, and even the services surge in 2014/15 only ‘made up’ for the severe underperformance of that sector in the previous few years.   Recall that, for a country with a small population, New Zealand’s export share of GDP is very low to start with, and over this decade there has been no progress in closing that gap (something probably an integral mark of any sucessful policy programme to close the overall productivity gaps).  The result isn’t very surprising given how out of line with relative productivity our real exchange rate has become, but it can be (soberingly) useful to see the hypothesis confirmed in the data.

And one last chart.  Here is the proxy for business investment spending as a share of GDP (total investment less government and residential investment).

business investment to dec 17

Yet another chart in which each peak seems lower than the one before it –  and this in a country where, with very rapid population growth at present, one might have hoped to see a temporarily larger than usual share of current GDP going to business investment, to maintain the capital stock per worker.   But no.    If anything –  and there is noise in the series so I wouldn’t make anything much of it – things may have been falling off again in the last few quarters.

These weren’t outcomes the previous government showed any sign of caring about.   In Opposition, Grant Robertson would regularly release statements when the national accounts came out lamenting the relatively poor performance.  In office, there was no statement yesterday.  And despite the occasional ritual obeisance to the idea of lifting productivity performance, there is no sign that government –  or their Treasury advisers –  has any serious idea how such outcomes might be brought about, or any very serious commitment to trying.


29 thoughts on “Our rather moribund economy

  1. GDP Per capita is a measure of the total output of a country that takes gross domestic product (GDP) and divided by the NUMBER of PEOPLE in the COUNTRY

    Well now

    On the face of it, with lower highs, mass immigration is not working

    I would change your headline to something more punchy that might get the attention of the gnomes in Wellington, maybe they can change the denominator


    • except of course that it isn’t as simple as just having fewer people and the same GDP. I’d have to spell out the mechanisms I mean, which i’ve done in other posts and speeches.

      Officials in key places are pretty well aware of the arguments and analysis I’ve put forward. There have been signs that some – notably in the Productivity Commission – are even sympathetic. For others – and their political masters – I’m not quite sure what mix of (a) serious problems they have with specifics of my arguments and (b) a serious clash with priors about the value of immigration explains the resistance.

      The title was an echo – mostly for my own amusement – of a note I wrote back in about 2011 at the RB (when Alan Bollard was keen on talking up the rebalancing and improvement in the NZ economy), something along the lines of “Portrait of a moribund economy”.


    • Everyone knows we have a productivity issue. But when our largest industries are in service and we have reached peak primary production with 10 million cows then there is really no solution to this productivity question. The very best service is in more people and not less people.


  2. Why is there very little commentary like this in either major newspaper each day in NZ? I scour Stuff and NZ Herald each day and find very little on macro issues. Some on Interest.co.nz – but not enough.That is part of the problem.

    What would be your 10 point plan for the moribund economy?

    I am guessing – lower OCR, lower exchange rate, free up land to dampen housing market, slow immigration, but also keep minimum wage down and keep government sector from expanding too much because it is inefficient?

    I’d like to read a blog on your recipe for success.

    Perhaps there is one already…

    Liked by 1 person

    • Why is there …. ?

      Mushroom country – keep them in the dark

      Around 1980 a book about the future was published with the title FOXCROFT. The story of a single corporation that became so powerful it came to dominate the world and world governemts who then became dependent on, or, subject to the dictates of the uncontrollable organisation called FOXCROFT.

      Population was controlled. On their 18 birthday citizens were required to present themselves at a Foxcroft Centre where they were tested and screened. A strict 10% were deemed breeders and were provided with full rights to establish a family unit and breed. Partners were chosen for them. The remaining 90% were deemed not to meet the DNA requirements, became wards of the state, were allocated a living pod (ala Jucy hotel pods), were given regular weekly supplies of a psychotropic hallucinogenic drug that kept them sedated and docile (Ice, Methampetamine, facebook, instagram, twitter) and lived their lives out that way. Chemical reproduction controls.

      At that time Google and Facebook were unheard of

      Interestingly there is a new book out called the GODS of FOXCROFT
      Published in 2000 it paints a similar proposition. A time when time is meaningless, when human life is created outside the uterus, and death is a dispensation from The Gods of Foxcroft, not a natural result or individual right

      Still pre-Goole and pre-Facebook and pre-Apple. Organisations that don’t manufacture anything but are on the cusp of determining the mind-numbed state of the global populace and are so financially dominant they reminded me of the next step being FOXCROFT

      It’s starting – the Facebook-Apple-iPhone-Google effect – meets all your daily needs

      Why he left Facebook because it made him lonely as if he was living alone in a pod


    • I guess major media are increasingly resource constrained. But Newsroom did have a piece on similar lines
      https://www.newsroom.co.nz/@boardroom/2018/03/15/97000/gdp-per-capita-growth-lowest-since-2011 and they do run my stuff from time to time.

      This speech I did last year to a U3A group will give you some of what you are looking for

      Click to access large-scale-non-citizen-immigration-to-new-zealand-is-making-us-poorer-mana-u3a-sept-2017.pdf

      On land, yes I certainly favour freeing it up, altho for its own sake – a more efficient, cheaper, housing market – rather than because I think there is a strong connection from that reform to improved productivity and real GDP pc.

      There are lots of other small sensible things that could and should be done (eg lower taxes on returns to business investment – in line with global trends), but the heart of my productivity story is that we’ve put (by policy) too many people in a place where the opportunities aren’t very good. Given that, we’ve probably done about as well as one could expect, but we could and should change that “given” and move away from one of the largest non-citizen immigrant programmes anywhere in the world. The issue, to be clear, isn’t the immigrants themselves – mostly good, if typically modestly skilled, people – but with the choices of successive NZ govts.


    • Lower OCR does not work when there is a high 35% equity to LVR control and the lack of competition due to bank licensing restrictions on foreign banks operating in NZ. Lending is restricted to Paid up capital and local savings. $166 billion in local savings are mainly in the 4 Australian banks, competition banks can’t compete with that level of local installed base keeping actual interest rates higher than it needs to be.

      Lower the Exchange rate, our RBNZ has only a $10 billion Currency intervention fund. It does not have the firepower to intervene.

      Free up land, we have already spread too far, from Leigh to Pukekohe is already 129km in length. Houston from Woodlands to Texas city is only 118km in length with 6.2 million people.

      Slow immigration, no workers for our service indutries. Can’t even get backpackers to pick fruit because they are all working in restaurants.

      Keep minimum wage down, minimum wage went up. Not likely anyone is going to accept less. Anyway we have a soft government with Labour so expect more strikes for higher wages. National would have just sacked the whole lot and put in migrant labour if anyone were to strike.

      Government sector is going to expand with a new government. They need consulting on everything given that the only person that have any clue is David Parker. The rest needs consultants.

      Therefore so far no recipe for success from Michael here.


  3. This quote is the start of an article on Newsroom this morning:
    “”GDP per capita growth lowest since 2011.
    Employers used immigration of cheap workers to keep growing at the end of 2017, putting off the tough decisions and investment needed to boost productivity and real wages.””

    Seems as if the message is slowly getting out. These figures can be blamed on the previous government and if immigration (well low wage immigration) has something to do with NZ’s failure to increase average personal wealth then it will take time to switch it off.
    Hopefully Grant Robertson reads this blog for the wisdom of the posts and the entertainment of the comments. If he does then the reforms that are needed will be seriously opposed by vested interests and therefore be unpopular; so now is the time to grasp the thistle not wait until nearer the next election.


    • Yes you can blame John Key as the Tourism Minister and subsidising Hobbit movies to encourage tourism to a record 4 million and 125,000 international students. Now a $15 billion industry that needs more and more workers. The fastest way out of a long term recession engineered by the RBNZ was by pumping the NZ economy with foreign tourist cash. I thought it was rather brilliant. Sure we can’t do much else other than servicing people an milking cows but at least we have a surplus and a growing economy.


  4. Politicians don’t try and win elections on economics any more, they just wait until voters get tired/frustrated with the incumbents or get lucky by exploiting a rare non-economic issue that lots of people actually care about.


    • Extract from a review of “Fire and Fury” in this months ‘The Oldie’: “”[Trump] won the Presidency. He saw what Hillary didn’t, that you can’t keep loading up poor whites with feelings of cultural irrelevance, deprive them of work, and not expect them to howl at the ballot box”.
      Not NZ now but given a recession (and there is always a recession) it might apply here?


      • Possible, altho it is always worth remembering that Hillary was a uniquely bad candidate and Trump’s winning margin – votes in the key Electoral College states – was small.

        But, of course, the unease runs wider than just the US example – look at the Italian elections where the two “radical” parties, one left, one right, did by far the best, apparently a reaction to some mix of (illegal) immigration, woeful economic performance, and a disillusion with the establishment


      • Hilary a bad candidate maybe but Trump was the uniquely worst candidate ever. I honestly cannot think of a single human being I wouldn’t prefer as the world’s most powerful person (I wrote ‘man’ but had to correct). The phrase ‘feelings of cultural irrelevance’ hit home.


      • Xi Jinping, Vladimir Putin, Jean le Pen, Jeremy Corbyn, Erdogan just to name same living – and possibly worse – people……

        (As I said at the time, I also wouldn’t have voted from Trump, but then I’d also never have noted for Clinton. I can understand – even if not agreeing with – people who voted for one solely because they weren’t the other (rather than saying voting for a third party candidate).)


      • Speaking of Italy, I have been listening to a lot of economics talks by Lega Nord associates – the populist Right – and to be honest they sound like socialists – if you didn’t know they were Lega Nord you would think they were on the far Left economically – monetary sovereignty, Keynesian deficit spending, anti-austerity. The have co-opted the MMT-style arguments of progressives.

        Given a recession I think NZ’ers may very well say “a plague on both your houses” and a Trump style party/leader may emerge.


    • “”Xi Jinping, Vladimir Putin, Jean le Pen, Jeremy Corbyn, Erdogan”” worse people I’d agree with you but all would be better as President of the USA – less impulsive, less conceited, less arrogant, more willing to listen to good advice. I assume you mean ‘Jean-Marie Le Pen’.
      Of course some of them would try to change the rules to become president for life and I think two of them would be sufficiently devious and evil enough to succeed.
      There is an issue – is being a good president of America only measured only by ‘making America great again’ or do we measure it by being a successful leader of the free world?


  5. Winston Peters is keen on getting us offside with the Europeans and the UK by pushing for signing a FTA with Russia. Might be a big waste of effort if this nerve agent assasination in the UK gets a rather nasty political and economic fallout. Seems a rather silly move by the Russians if this was at all by the Russians given that a nerve agent of this unique signature would easily and automatically tie back to the Russians. Sure looks like a setup to increase tensions with Russia by perhaps interested parties other than Russia.

    Looks like all we want to sell to the Russians would be more milk which might make our productivity numbers look better since we do not count the 10 million cows in our productivity calculations but already having reached peak cow numbers no point signing any more FTA agreements as we have no product to sell.


    • Today’s Herald has a cartoon of a very large Russian bear ignoring a small ‘May’ bird in a union jack that is pecking away at it. Using that friendly website: If United Kingdom were your home instead of Russia you would…
      . live 10.26 years longer
      . make 2.1 times more money
      . spend 4.1 times more money on health care
      . be 74.57% less likely to be in prison
      . be 88.89% less likely to be murdered
      However Russia is slowly beginning to sort its economy out. Now has oil and a massive wheat harvest. Gives Putin a strong hand. Winston would be wise to keep low profile until everyone forgets this poisoning like they did the last one and the shooting down of an airliner from the Ukraine but with a missile that was in Russia the day before and the launcher back in Russia the day after. Doubt Russia needs milk but I would expect Russia and the Ukraine to out export NZ in milk products eventually.


    • Its the same with the CPTPP that David Parker has done a great showmanship to sell it to the public. We have no product to sell. We are already at peak primary production.

      It is about time we start subsidising our high tech industries instead of allowing them to be bought out by foreign owners.


      • GGS – I thought we did subsidise them and then if they are looking promising we sell them to foreigners. Maybe if Kiwis bought shares instead of houses it would be different?


      • If the NZ government had invested $1 billion or even $2 billion into Rocketlab, then we could have kept it as a NZ company. NZ has a weekly launch window into space due to the lack of aircraft congestion. Our isolation in this instance is an advantage. A US company has contracted Rocketlab to send mining equipment to mine the moon. Since mining in NZ is a problem with the Greens we might as well join in and look towards mining the moon and mining asteriods.

        We are more prepared to commit to subsidising 1 billion trees. The cost of planting non native trees is $10 a tree. This is a $10 billion planting subsidy by the taxpayer to offset the pollution cost of milk and agriculture production under the Paris Agreement on Climate Change. The cost of planting native trees is even higher at $20 a tree which makes it a $20 billion subsidy by the NZ taxpayer.


      • The shares in these startup high tech companies are not usually listed and ordinary people do not have the knowledge or the ability to take on a high risk high return investment business. Even banks are not prepared to fund these high risk ventures. Property does not have that high risk and there is a shortage so it is a no brainer to invest in property for the average person. Also banks will lend on property but they will not lend on high risk business.

        It makes more sense for the government to take these risks if it results in a high tech industry which equates to a more high skilled population that have high skilled jobs jobs. Now we train high skilled labour for jobs that do not exist and we import migrants for low skilled jobs because the jobs are in the low skilled service industries.


      • We don’t need to subsidize NZ tech. We need a higher “free” savings rate (i.e. not tied to funding land prices) that can be used to either build NZ businesses or buy overseas businesses that have strong returns.


  6. It looks as thought the rate of business investment has settled at a level ~20% below the previous few decades. Even the old rate was consistent with a state of relative decline vs our peers, albeit that GDP per hr worked was at least positive. So looks like we would need a ~40% increase in investment (4% of GDP) to turn the boat around.


  7. Productivity. I keep reading this blog and it still seems weird. OK I understand NZ produces more than in the past but the increase is caused by population increase and longer working hours not actually producing more per working hour. I trust the figures cover factors such as more young immigrants, ever more Kiwis retiring, more school leavers going into unproductive study rather than productive apprenticeships.
    Where I have trouble believing the reported lack of productivity is in the innumerable small technological improvements in everyday life. Everywhere I look I see modest but real improvements. Simple things that impact everyday such as a better washing machine, a website telling me which beaches are polluted and what routes to take to avoid congestion and when looking for a new bed I can search the internet or go to the shops and take photos of what I see.
    The link between technology and productivity was solid from the first canals, factories and railways until very recently. Per capita productivity growth has led to a massive increase in person wealth from my grand-parents time to now. So the basic situation ought to be growth in productivity in line with technological improvements and in so far as I’ve seen the figures that seems to apply to other countries.
    So in some mysterious way NZ must be going backwards. Some negative factor that is balancing the benefits of GPS and Uber, AirBnB and magical spell-checking, electric cars and improved weather forecasts, video conferencing between farmer and vet, etc. One factor might be NZ losing high talent and experience and replacing it with inexperience but can that really out weight all our modern technological improvements and the steady move from rural to usually more productive towns and cities? Could it be that young Kiwis are less hard working than their parents or at least less motivated?


    • Remember that measured productivity in nz is far higher than it was100 years ago, and far higher now than that in say China today. It is just that productivity here has grown less rapidly than in most other countries for 70 years or so. There is quite a literature on the measurement issues and whether they can explain the advanced world slowing in reported productivity growth. The consensus, for, now is that they can’t.

      (Bear in mind that hairdressers or cafes probably aren’t much more productive than they were 50 years ago. Or orchestras, or a fair chunk of the public service)


      • I have no issue with say 1945 to maybe 2003 when I arrived – NZ started the race in the lead and others caught up but at least NZ was moving forward. It is the data you publish for the last 5 or 10 years. My impression is of technology developing faster than ever; many of the top businesses in the world did not even exist say 25 years ago so change is rapid and accelerating.
        Your point is about NZ productivity lagging over 70 years but my trouble is with it stopping when it ought to be at least keeping up with other countries with comparable economies (and there are now many of them).

        Hairdresser: can learn new techniques on YouTube, has a full accounting system replacing paper bookkeeping, staff can report in ill from home when they wake up instead of a manager discovering it when they fail to turn up, customers can call and say they are held up in traffic.
        Cafes: improved accounting from software that can be downloaded for next to nothing, discovering which markets are selling what ingredients via the internet instead of at 4am discovering no fish have been landed, texting staff asking them to come in early because of unexpected bookings, online reviews for other cafes helping an owner decide what the customer is looking for.
        Orchestras: need a double bass repaired – just search the internet, booking travel and hotels and requesting group discounts all done online when it would have taken hours on a phone, printing off new scores, listening to new musical work online before deciding to play it, controlling your own advertising graphics.

        OK you win on the public service – maybe remove all computers and their efficiency would recover?


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