A woefully weak tradables sector

The GDP numbers came out last week.   The media commentary, such as it was, seemed quite relaxed about the numbers (politicians’ attention was elsewhere) with a “not too bad” sense.  But here is a chart of the annual average percentage growth in real per capita GDP.

RGDP aapc

It has now been more than 18 months since the annual average growth rate was above 1 per cent.  That is the worst run of per capita GDP growth, outside recession periods, we’ve had in the three decades for which we have data.    It is the Labour/New Zealand First watch now, but the slowdown was well underway towards the end of the previous government’s term (0.8 per cent annual growth for the year to September 2017).

It has, it seems, been quite a few quarters since I last updated my chart showing an (indicative) split between the tradables and non-tradables sectors of the economy.  Here it is, in real per capita terms.

T and NT to Dec 18

Per capita growth in the tradables sector isn’t doing too badly at all (although even there, the growth rates are a bit lower than they were in the mid-90 to mid 00s period).   But what of the tradables sector indicator (recall that this is agriculture, forestry, fishing, mining, manufacturing, together with exports of services)?    The latest observation is 7 per cent lower than the peak, itself reached more than 14 years ago.     Growth in the GDP contribution of these sectors has been about 1 per cent, in total, in the 18 years from the end of 2000.

It is an astonishingly bad performance –  well, it would be “astonishing” if we hadn’t become so used to New Zealand’s underperformance, and ministers (in successive governments) hadn’t got so used to glossing over failure.  Successful economies –  and most especially small successful economies –  tend to succeed when firms that can take on the world markets and successfully compete find it profitable to develop, locate, expand and remain in the country in question.   That simply hasn’t been the New Zealand story (and consistent with that, our foreign trade shares of GDP –  exports and imports –  are little changed over almost 40 years; quite out of step with the experience of successful advanced and emerging economies).

More than a few economists don’t really like the way this chart combines components of the GDP production and expenditure measures, in ways that (while probably sound enough for illustrative purposes) aren’t quite kosher.   So here are components individually, again in real per capita terms.

components mar 19

In per capita terms, mining is smaller than it was in 1991 (despite that huge oil-related surge in 2007).  Agriculture etc and manufacturing are still a bit smaller than they were in 1997 –  and less than 10 per cent higher (in per capita terms) than they were in 1991.

Services exports were, once, a good story, recording very rapid growth –  in per capita terms – over the 1990s and until around 2002.  But that was then, almost a generation ago when our current Prime Minister had barely come of age.  The current level of services exports (per capita) is only about 4 per cent higher than it was in 2002.     And all that despite the export subsidies –  for that is what film industry grants and bundling immigration and work rights with study here really are.    Others might note that emissions from international air travel aren’t even captured in the commitments successive governments have made, let alone internalised.

Here is another way of looking at exports of services: in nominal terms as a share of GDP.

services X to dec 18

The current share (8.5 per cent of GDP) was first reached in 1995.

When the Minister of Finance, the Secretary to the Treasury (and even the Governor of the Reserve Bank) go on about a more “productive economy”, these are the sorts of underperformances they need to start openly engaging and grappling with.

That, in turn, might involve taking the real exchange rate more seriously


A 20 per cent plus sustained appreciation in the real exchange rate, unsupported by (say) independently-sourced acceleration in productivity growth, is rarely very positive for the economic health of a country’s tradables sector.  But none of our political parties seem interested.  A high exchange rate means consumption remains cheap, and domestic-focused firms (who now dominate most of the business bodies and lobby groups) do well.  But it simply isn’t a sustainable long-term foundation for New Zealanders’ material prosperity.    High real exchange rates are a good outcome when they stem from an economy with strong underlying productivity growth, catching up with the rest of the world. But our policymakers and advisers almost seem to act as if they think they can put the cart before the horse, as if having a high exchange rate is itself some mark of success.

6 thoughts on “A woefully weak tradables sector

  1. Interesting.

    I am amazed by the complacency that exists in New Zealand right now. Activity consistently under shoots the RBNZ forecasts and they’ve over stated their estimate of the output gap since 2011!

    The Phillips curve has clearly flattened yet the Bank persists in showing no significant change in the NAIRU range since pre-GFC. Based on the current level of unemployment (4.3%) my historical PC suggests the LCI should be 2.6%y/y, not 1.9% and that’s been boosted by government policies. To get the LCI up to around 3%y/y consistent with what would be required to achieve the inflation target we need unemployment down around 3%, suggesting still ample slack.

    Inflation is tracking 0.2%q/q and ex-petrol and tobacco is only 1.3-%y/y.

    Inflation expectations are clearly falling… and bond yields are collapsing with the 2yr yield now just 1.51% and the 2s10s spread down 54bp y/y. The collapsing bond yield curve is alarming.

    The ANZ Business Outlook and the PMI for Services are at levels – even adjusting for a centre-left political bias – consistent with the RBNZ rate cut scenario.

    And yet the commentary coming out of banks and the media is that everything is fine. Well, it’s not.

    Note, I’ve not even mentioned what’s going on in China or australia…


    • Tourism and International Students is now a year round $16 billion industry that puts dollars directly into the pockets of most ordinary people every 12 months. I guess you become complacent when there is a plentiful of food on the table, cheap alcohol, a 65 inch TV, a smartphone to chat with friends in the hundreds, cheap household appliances, a overseas travel holiday a year and with a decently inflated NZD it gets you to most asian cities cheap.


      • For some reason, I find Auckland supermarkets much better stocked than Melbourne or Sydney supermarkets. Our products range is far superior and the quality and freshness is top notch compared to the products available over there. Strange when the owner of Countdown is Woolworths over in Australia.


  2. “” Others might note that emissions from international air travel aren’t even captured in the commitments successive governments have made, let alone internalised “”.

    Eleven days ago I wrote to our climate change minister.
    “”Dear Mr Shaw,
    One simple question: do NZ’s carbon emissions include international travel?
    I have just been reading an article on Newsroom titled ‘Zero Carbon Bill ‘95 percent of the way there’’ that doesn’t help me answer that question. “”

    I’ve had no reply.

    If CO2 emissions are to be measured seriously they must be included otherwise he is wasting his time. I believe international travel is about 10% of our total emissions.


  3. With the long warm weather throughout NZ, tourism spend should be a record year. I doubt even the recent Christchurch shooting would dampen tourists from coming in and soaking up those fabulous almost tropical beaches mostly isolated from people and in NZ those beaches are everywhere. Too bad the only people that would actually benefit would be the Red Shed Warehouse and the supermarkets for cheap tents and provisions and the local fish and chips store.


    • Perhaps add in Air BnB to gain from the local rentals eg places like Hokitika is a booming town for Air BnB rentals.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s