More data on our feeble economic performance

The media coverage of the outgoing Air New Zealand CEO Christopher Luxon’s political ambitions prompted me to dig out a post I wrote a year or so ago, inspired jointly by the Prime Minister and her Business Advisory Council (which Luxon chairs) and by an old article by Paul Krugman, “A country is not a company”.    As he ponders what to do next, I hope Luxon takes the time to read Krugman’s piece.  Of course, it is fair to note that the current crop of politicians –  across all parties – is generally so unimpressive, accomplishing so little for New Zealanders, that I wouldn’t want to be thought of as suggesting that retired CEOs would be any worse than (say) crown prosecutors, political advisers or whatever.

Also yesterday, the latest quarterly national accounts data were released.  The headline numbers seemed to be a touch higher than those who forecast these things in detail had expected, but not in a way that really changes the underlying picture: it has been a weak recovery (now eight or nine years into it) and whatever supported moderate growth appears to have been fading.

In that post from last year, I quoted a speech by the Prime Minister on the economy, including launching the Business Advisory Council.  I wasn’t that impressed, but did quote some of her aspirations.

Yesterday morning the Prime Minister gave her promised speech on the economy.  It was, frankly, astonishing how little there was there.   There was some mention of the problems

Our overall objective is to build a productive, sustainable and inclusive economy.

On each score we have some way to go. When it comes to productivity, the OECD has said we are “well below leading OECD countries, restraining living standards and well-being”

and

We need to transition from growth dominated by population increase and housing speculation, to build an economy, that as I said, is genuinely productive, sustainable and inclusive.

and

First we want to grow and share more fairly New Zealand’s prosperity.

That means the gap between the highest and lowest income and wealth deciles reduces, real per capita income increases; the value and diversity of our exports grows and home ownership increases.

In particular we want to build our exports and have export led growth.

Which is all well and good, but there is nothing –   nothing –  in the speech about what the government proposes to do

Another year on, how are we doing?

On productivity, shockingly poorly.  Recall that we start with labour productivity levels barely 60 per cent of those of the leading OECD countries (US and various northern European countries).

Here is a chart of labour productivity growth since just prior to the last recession. (As ever, I here average the two GDP measures and the two hours measures.)

GDP phw mar 19

The orange line is the average for the last five years.

Since the current government took office, total growth in labour productivity has been 0.2 per cent.  But there is quarter to quarter noise, and as the chart illustrates whatever is going on was in place well before the current government took office.   There is no sign this lot are doing anything that is producing new and better results, but since the start of  2012 total productivity growth has been not much more than 1 per cent.  That is over seven years.  It is a shockingly poor record.

What about that talk of “building exports and export-led growth”?  No doubt the PM and her ministers are repeatedly fed lines about how successful New Zealand’s strategy of signing up preferential trade agreeements with all manner of countries has been. There are certainly lots of documents, but here is a chart showing exports and imports as a share of GDP, starting from the same point as the previous chart, just prior to the last recession.

ex and im

The numbers bounce around a bit with fluctuations in commodity prices and in the exchange rate, but broadly speaking the share of our economy accounted for by foreign trade has been shrinking, not expanding.    That isn’t a good sign (those with longer memories will recall that the previous government once had a specific goal of raising the export share to 40 per cent).   There are much more important issues –  than busy, busy trade agreements –  that simply aren’t even being addressed, or (it seems) even recognised.

I don’t have a chart for it, but everyone recognises that nothing has yet been done that would make any material difference to the housing price disaster that successive waves of central and local governments have inflicted on us.

It isn’t clear that, on matters economic (which have real implications across numerous dimensions of “wellbeing”) this government is really any worse than its predecessor.    But what a low bar that would be.  Neither main party –  or, as far as one can tell, any of the minor parties –  seems interested in getting to grips with creating a climate that generates materially better economic outcomes.    Easier, I suppose, to just pretend.   That way, among other things, you don’t need top-notch economic advisers and institutions.  But what a betrayal of New Zealanders.

 

 

 

29 thoughts on “More data on our feeble economic performance

  1. The details of the GDP print were lousy Michael. Boosted by a 9.6%q/q gain in mining – related to a facility coming back on stream – and a bounce in food processing on the back of strong dairy output in q4 (subsequently reversed).

    The trend rate of growth right now is very weak and if the PMIs are a good guide and they have been in the recent past, then we could see an alarming further drop in business confidence in next weeks ANZ Outlook and it would seem we are sliding into recession. The Banks forecast of a rebound in H2 would be laughable if it weren’t so worrying.

    Liked by 1 person

      • I guess we will need to bow lower and longer to China over our GCSB judgement call over Huawei. It is very clear they have no technical data and no technical evidence in support of their comments. Sentiments such as “I feel they will spy through Huawei is just not good enough”.

        Tourism Minister Kelvin Davis will travel to China tomorrow to deepen the 2019 China-New Zealand Year of Tourism and our relationship with China.

        “I also want to take the opportunity to learn more about China and its people during this visit, so we can provide visitors with a great experience, and broaden our understanding of their deep and fascinating culture.”

        https://www.beehive.govt.nz/release/deepening-our-relationship-china

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      • Anyway when Jacinda Ardern decided a Foreign Buyers ban was necessary. Foreign Investors and buyers have decided NZ is racist and have decided not to do business with us, I guess.

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  2. There’s a structural problem in that politicians don’t see any votes in reform. The perceived short-term costs of reform seem to outweigh any long-term benefit in state capacity from productivity (I would argue the eventual survival of the nation-state depends on it).

    It’s difficult to appeal directly to the median voter, as productivity is too abstruse a concept.

    What if we identified a long-sighted UHNW individual, and persuaded them to set up an annual $1m cash prize for the individual who had done the most to advance productivity in that year?

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  3. So Sir John Key at the beginning of his nine years in power wanted exports to rise from 30% to 40% of GDP and instead they sank to about 27%. When asked if he had any regrets about his time in power he says “”if he could redo anything from his time as PM he would change the flag without consultation””.
    https://www.tvnz.co.nz/one-news/new-zealand/sir-john-key-says-if-he-could-redo-anything-his-time-pm-would-change-flag-without-consultation

    Wrong priorities. Not certain our current govt is any better.

    Liked by 1 person

    • John Key clearly was wrongly briefed by his economic advisers. Export GDP to total exports is expected to fall rather than rise as a positive rather than a negative because service export dollars are injected 100% into the local domestic economy and will likely turn over a number of times in the domestic economy. Simple maths.

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      • GGS: NZ 28%, Germany 47%, Switzerland 65% – i visited both the European countries and services seemed at least as good as NZ. You may be right with PNG at 75% and its minimal services. I’m not sure how you explain Luxenbourg at 223%.
        My layman’s grasp of the issue is if NZ invested in export business (instead of property) then by exporting processed milk products like Denmark and processed timber products like some Scandinavian countries then our current exports would increase in value and NZ would be wealthier. Being a wealthier country would allow Pharmac to subsidize medecines as per other countries (and specifically Australia); wellbeing doesn’t mean much if you are dying of a cancer or disease which has a remedy you cannot afford.

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      • Bob, Germany and Switzerland have large scale financial services and large scale manufacturing to balance. Our large scale industries are cows and tourism. Unfortunately we have reached peak cow. The maths is quite simple. But the argument that falling Export GDP to Total GDP is a negative is just so wrong, I am unsure why you and anyone would think that unless you can’t do maths.

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      • Bob, the question you have to ask is ,”How much of that export dollar is spent in the local economy?” With tourism, 100% of that export dollar is spent in the local economy and it is spent several times. Eg, tourist goes to a pub to buy a beer and spends $1. The local pub pays wages and buys replacement beer from the local wholesaler. The local wholesaler pays wages and pays the importer. That $1 has rolled several times in the local economy before it goes off to buy imported beer. If it was a local brewer then that $1 continues to pay the local brewers wages and continues increasing domestic GDP. Therefore simple maths tells me $1 tourist export GDP results in 2 times domestic GDP or 3 times or 4 times domestic GDP. The more times that export dollar is spent in the domestic economy the better. It is a positive result and not a negative.

        In manufacturing exports, how much of that export dollar is returned and spent in the local economy? Perhaps only 10% or 20% goes back to the local economy because most manufactured products have imported components which means that export dollar does not get spent in the local economy which is a negative result.

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  4. NZ’s best hope (maybe only hope) is the big wave of baby boomers who are expected to sell off their businesses in the next decade and the new owners investing in those business increasing efficiencies.

    How real is the full employment we claim to have at the moment, the advertised jobs seem to be all low value / building related, with very little to no actual high valve / skilled jobs (not a lot of skilled professional engineering roles except for building related about for the last 6 months). Perhaps the lack of wage growth could be driven by the aforementioned baby boomer businesses focusing on maximum cash flow for the next couple of years.

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      • Personally I have spent $60,000 on insulation and maintenance to bring my 11 properties up to insulation and health and safety standards over the last 12 months. The next 12 Months will likely see me spend a similar amount on heat pumps and general tidy up painting, replacing worn carpets etc. My tenants will be living in far better conditions than I personally am which is rather ridiculous. All properties are fully tenanted with rising rents(all this costs have to be recovered afterall). Falling interest rates will inject more cashflow. The economy looks positive from my perspective anyway.

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  5. We know a lot less than we think about the world – which explains the allure of “simplism” – https://www.newstatesman.com/2019/06/we-know-lot-less-we-think-about-world-which-explains-allure-simplism

    Perhaps we’re in an age of simplism, when the actual working of economies, and especially the global economy, are so complex it’s difficult for (even sincere and capable), politicians to retail ideas to voters in anyway that reflects their complexity.

    Just a thought.

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      • Thanks for your comment GGS. Undoubtedly some economists do, but I’m willing to bet a significant percentage of voters don’t clearly grasp concepts like “productivity”, and think it means how hard a person works or how many service/widgets they make in a hour. And my (arm chair), interest is in how effectively politicians can communicate with voters, the people who give them legitimacy, if voters don’t understand economic concepts, let alone the merits of policy involving them. Mr. Reddell bangs on our lack of productivity drum daily, and he’s correct as I understand it (NZ’s perennial economic problem), so my point is if we allow simplism is a thing, how, or if, it can be overcome?

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      • Most people do understand productivity because we are told every single of our working lives on how to be more productive. Eg set goals, priorities tasks, work smart, computerise etc etc.

        But people also understand profitability which economists seem to struggle with. If I were to invest more in automation, what is my payback. If we had large scale manufacturing then investments in the latest robot tech makes sense. Fewer workers, increased product volume. But in NZ the domestic market is too small which means that Investment in million dollar robots does not equate to more sales or more profits.

        Our largest growing industries are in services. I am starting to realise that NZ is ahead of the curve in having to deal with an aging population with incremental spending on health care and developing other service type industries as we have also had to give up most of our own industrial manufacturing of any significant scale and instead rely on imported manufactured product.

        Our government did a think big on dairy and meat which boosts productivity because our economists wrongly advised that our farming community is high productivity but our economists failed to grasp the enormous amount of food and land resources are required with 10 million cows that eat and dump to the tune of 200 million people.

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      • I was just thinking about a Kiwi fund manager who was previously managing a multibillion dollar fund in Singapore. In Singapore his revenue in his deals trading amounted to hundreds of millions. But this same chap who used to work to deliver enormous productivity to Singapore is now delivering low productivity to New Zealand. In Singapore his revenue a year was in the hundreds of millions. Now in NZ retired and trading his own personal portfolio of $5 million, his earnings are in the tens of thousands instead of the hundreds of millions.

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  6. Features

    The happy medium

    Money worries have set off a wave of populist politics in most Western democracies, but not here. Is that because our middle class have been doing quite well compared with those in other countries? Pattrick Smellie investigates.
    https://www.noted.co.nz/currently/this-weeks-listener-april-6-2019/

    I assume this didn’t include tourism or agricultural workers and that much of that wealth was in housing?
    Interesting how much of that wealth is spent on overseas travel: so much for concern about climate change.

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    • With only 4.5 million people on land mass the size of Japan with 123 million people, we have a long way to go to even justify why we are not doing more to accept many more migrants.

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      • That isn’t a good argument. It is like owen McShane’s “you could fit the world’s population on an area the size of Lake Taupo.
        A lot of japanese live in sterile apartments with all the charm of a public toilet and wish their kids had a lawn to play on.

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      • It is a good argument when we export 95% of our agricultural food production(ie we over produce committing the entire country land resources for pitiful economic returns) and we know from the 10 million cows that we already handle waste production and already feed around the extent of 200 million people.

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