On “ancient history” (the last business cycle)

One very slight side-benefit to the savage collapse in economic activity that began a little over a month ago is that we now know, with a great degree of certainty, when the last business cycle ended.  In the quarterly series that we mostly rely on in New Zealand the peak will have been the December quarter of 2019.

The nice thing about knowing when the cycle ended is that we can then look at the full cycle and see how things went over that full period, encompassing the previous recession and recovery and more recent years of relative normality.  And we can compare the most recent business cycles with the previous couple.   In time, we will be able to do some useful comparisons with other countries and see how our business cycle compared with those of other advanced countries, but it will take a while for all the relevant data to turn up in OECD databases, so this post is almost all about New Zealand.

If we use as the basis for dating business cycles the period from peak to peak in real GDP –  which seems reasonable for New Zealand, absent a business cycle dating committee –  the last cycle ran from 2007q4, the previous peak just prior to the domestic recession and global crisis, to 2019q4.   That is a fairly long growth phase for New Zealand.  It was interrupted by a “double-dip recession” in the second half of 2010, but people tend to discount such dips for these purposes because GDP had not yet got back to pre-recession levels before that modest setback took place.

What of earlier periods?  The official quarterly New Zealand GDP series only go back to 1987, and official quarterly population series only starts at the beginning of 1991.  So here I am going to focus on comparisons only with the cycle that ran from 1990q4 to 1997q3, and the cycle from 1997q3 to 2007 q4 –  so all peak-to-peak comparisons.

(It is worth noting here that there will be revisions to the data for several years to come, probably most substantially after the annual national accounts for the year to March 2020 are produced at the end of the year –  coronavirus permitting.  But there is no obvious reason at this point to suppose the GDP numbers are biased one way or the other.)

Here is average annual growth in real per capita income for the three full business cycles.

Cycle GDP pc

Allowing for terms of trade effects improves the picture for both the 97 to 07 cycle and the most recent one, but doesn’t do much to close the gap between the two: the latest cycle just wasn’t that good.

What about productivity?  You’ll recall that my preferred labour productivity measure is real GDP per hour worked, in this case using both measures of GDP (production and expenditure) and both measures of hours (HLFS and QES).  Here is the same chart for that series.

cycle GDP phw

As it happens the average rate of productivity growth for the last five years was even lower than for the full cycle.   And this in an economy starting (a) so far behind the OECD leaders, and (b) therefore less affected by any slowdown in productivity growth at thre frontiers.

What about foreign trade?  Our ministers and officials like to talk up our commitment to open trade and all the special trade deals they like negotiating.

But here are exports and imports as a per cent of GDP.

cycle foreign trade

Highly successful economies tend to be ones that, for their size, export and import a lot.  We don’t.  (It isn’t a great starting point for a time when quite a bit of trade is going to be disrupted by the coronavirus, perhaps for several years to come.)

The poor overseas trade performance may have something to do with whatever mix of factors delivered us such a high real exchange rate.

cycle real TWI

I couldn’t help myself and did take a quick look at how other OECD countries had done on the headline growth numbers, in per capita terms.  Here are the top ten OECD countries

Avg ann % growth in real GDP per capita: 2007q7-2019q4
Poland                                           3.4
Lithuania                                      2.8
Korea                                             2.4
Hungary                                        2.1
Slovak Republic                          1.9
Latvia                                            1.7
Estonia                                          1.6
Israel                                             1.5
Chile                                              1.4
Czech Republic                            1.3

Every one of those countries started the business cycle well behind the productivity leaders, and gained ground relative to those countries over the 12 years.

On this particular metric –  real GDP per capita –  we didn’t do too badly, in that we more or less matched the performance of one of the leaders (the US), which had been at the epicentre of the crisis at the time of the last recession.   There isn’t cross-country comparative data for productivity growth for the full period yet,  but –  using annual data –  for the eleven years to 2018, our productivity growth lagged behind most of the OECD leaders, including the United States.  For us, the gaps to the leaders –  opening out for 60 years or more now –  have just kept widening further.

Sadly, whether in the latest speech from the Minister of Finance or what little we’ve seen from the Opposition, there is nothing to suggest any major party contesting this year’s election is going to offer an alternative that might make a real difference for the better.  Amid the coronavirus implosion I’m guessing productivity failures won’t even get much attention this election.  But they should, and any serious recovery plan should go hand in hand with a strategy that has some credible chance of finally beginning to reverse decades of failure.  Turning inwards and looking more heavily to the state is most unlikely to be such an answer.

4 thoughts on “On “ancient history” (the last business cycle)

  1. I remember many years ago an Indian diplomat visiting PNG saying the best time to reform an education system is immediately after indepence otherwise the elite are too committed to the way things are. The idea being that you can change things when there is a revolution or equivalent dramatic event (eg the French revolution leading to the metric system and the code Napoleon).
    Our only economic certainty is this Covid-19 epidemic is a dramatic event so now is the time to promote new ideas. Those with agendas to push are doing so already – there have already been articles about now is the time to accelerate climate change policies (including emphasis on public transport and apartment living that may be a hard sell during the lockdown). More promising have been ideas to change our tourism from volume to quality and therefore investing in the environment. Now is the time to dust off our best productivity suggestions.
    This is my little contribution. There have been suggestions that Dr Bloomfield should be ‘New Zealander of the Year’; in my opinion any of those cleaners or care-givers who caught Covid-19 would be a better choice – Dr Bloomfield has talent but is well rewarded, doesn’t work shifts, doesn’t risk his health while doing menial tasks. But relevent to NZ economy, productivity, employment and productivity why not announce the next five knighthoods will go to whoever creates most wealth in NZ measured by exports and employment.
    I’m sure there are more substanial suggestions just waiting to be sold to our government. This is a rare opportunity for ideas to flourish that are not measured by our short election cycle.


    • I hear calls to pay home based carer’s more,
      I hear calls to make commitment to climate change.
      I hear calls to pay Healthcare works more, as per janitors and Teachers….

      I know that none of these things will happen and that our high minimum wage will
      be a drag on getting people back to work during a Depression level event.

      This is about survival. There will be no money to pay for socialist agendas, we will all become poorer.
      Business workers and owners may loose everything here, it is the way of Capitalism, but due to a trend of privatizing profits and socializing looses since the dot com crash, there is simply too much leverage to kick the can again…. That may not stop Jacinda from trying but she will fail.

      Its clean out time.

      Liked by 1 person

      • I even read a call to move Ports of Auckland. All the published calls involve spending money. It will be an unpredictably new world on the other side of lockdown. My son in France is predicting continuing work from home, reduced use of public transport, a move away from the cities, some rural areas of France to thrive and others to continue dying.
        My dream is for a change in kudos relating to varieties of work. We will boast about children who are care-givers and nurses. We will acknowledge that when it came to ‘essential’ workers it was the garbage collecters who kept working and my beloved librarians who had nothing to do. And higher status will be reflected by higher wages. The previous sentence is wishful thinking.


  2. […] Amid the coronavirus implosion I’m guessing productivity failures won’t even get much attention this election.  But they should, and any serious recovery plan should go hand in hand with a strategy that has some credible chance of finally beginning to reverse decades of failure.  Turning inwards and looking more heavily to the state is most unlikely to be such an answer. – Michael Reddell […]


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