The International Monetary Fund last week released their latest World Economic Outlook and associated economic forecasts. The value of these forecasts is not so much that they are likely to be correct – economic forecasting is, after all, largely either a mug’s game or a delusion – as that (a) their forecasts for all countries are done in a fairly common way, and (b) their previous forecasts are well-documented and readily accessible.
I took a look at a few of the IMF’s New Zealand projections. This chart, which I showed on Twitter last week, compares the IMF’s October 2019 (ie last pre-Covid) and April 2021 projections for New Zealand’s real GDP per capita for the period 2019-2026.
I thought three things were interesting about these IMF projections:
- over seven years, the IMF thinks that real per capita GDP will have increased by a little over 4 per cent (a bit under 0.6 per cent per annum),
- even by 2024 (three years away) the IMF still thinks that New Zealand’s real GDP per capita will be almost 2 per cent lower than they thought it would only 18 months ago,
- the total gap between the two lines over the 2020-2024 period (covered by both sets of forecasts) is almost 15 per cent of a year’s GDP – simply gone, and with no sign in these projections that that loss will ever be recovered (even if, at some distant date, perhaps the two lines eventually converged).
This isn’t a comment about Covid or New Zealand’s Covid policy – all sorts of things may be going on in the thinking of the Fund’s forecasters – just a report of how much poorer the IMF now thinks New Zealand will be over the coming years than it thought only 18 months ago.
But perhaps, charitably/hopefully, you are thinking “well, that doesn’t look too good, but surely the rest of the world – Covid mess and all – must be worse, or at least as bad?”.
So here is the same chart for Australia.
Which is probably the picture most countries would hope to have seen – some (inevitable) income losses last year, but a quick rebound and perhaps even a move to a future slightly higher growth trajectory. Note the other contrast to New Zealand: over 7 years the IMF thinks Australia will manage per capita growth of almost 8 per cent. Some part of the difference – although not the bulk of it – will reflect the fact that the IMF expects Australia’s unemployment rate by 2026 to be below 2019 levels, while in New Zealand the unemployment rate is expected to linger a bit higher than the pre-recession trough (itself higher than the previous pre-recession trough).
I didn’t do this comparison for a large group of countries, although for what it is worth the US chart looks more like Australia’s and that for Canada (not a stellar productivity performer in recent decades either) looks more like New Zealand’s.
I did have a look at the IMF’s forecasts for growth in real per capita GDP across all the advanced economies in the OECD (and the few non-OECD advanced countries). Over the period 2019 to 2026 we were well into the bottom quartile of OECD countries, at least on the Fund’s view of the outlook.
But it was this chart I found most sobering. Many of the countries we often like to compare ourselves with – from days past – are now much richer and more productive than New Zealand is. They are nearer the productivity frontier, and future growth can’t “just” be catching up. But in this chart I’ve shown the IMF’s forecasts for real per capita GDP for the countries with a 2019 level of labour productivity (OECD real GDP per hour worked, in PPP terms) roughly 10 per cent either side of New Zealand (the IMF does not publish productivity forecasts).
Of course, the IMF could be quite wrong, not just about the absolute outlook for the world economy (that is almost certain) but also about the relative performance of New Zealand. But when independent observers take a look at your country, its performance, and its suite of policies and think you will over the next few years do so much worse than a group of your peers (whether, in our case, considerably richer and more productive Australia – to which it is easy for young New Zealanders to move – or to a group of advanced countries with similar levels of productivity to New Zealand, all looking to catch up) it really should be a wake-up call for our political and official “leaders”.
But in New Zealand it seems that all those responsible would prefer that no one noticed, prefer to ignore the utter failure projected (on top of past decades of relative decline), to burble on about wellbeing, and to deliver to our kids some deeply diminished legacy and opportunities. We once were world leaders, but now this.
(Out of interest, I wondered what the IMF was assuming about immigration/population: of all those advanced economies – not just the ones in the chart – we are forecast to have the third fastest rate of population growth over 2019 to 2026.)