On Poland and economic performance

Next week we mark the 100th anniversary of the end of World War One.   Whatever else –  good and ill –  the resulting peace process ushered in, it led to the restoration of an independent Poland.   I was reading an article the other day by a British writer, resident in Poland, reflecting on 100 years of (renewed) Polish independence, which in turn prompted me to dig out some economic data.

My own reflection on Poland is that it is hard to think of a place in the western world (say, present day EU, other bits of western Europe, and western European offshoots – eg New Zealand, Australia, Canada, US, Argentina, Chile, Uruguay) that wouldn’t have been preferable to live in over the last 100 years or so, at least as judged by material criteria.   Perhaps if you were German, you have to live with the guilt of World War Two, but most of Germany was free again pretty quickly.   Romanians and Bulgarians might have been poorer on average, but they largely escaped the worst horrors of the German occupation.  To its credit, Bulgaria managed to largely save its Jewish population, while the Polish record was patchy at best.  With borders pushed hither and yon, and not a few abuses of other peoples (notably ethnic German) post-war, sanctioned by the state, the place then settled into 40 years of Communist rule.   There is a lot to admire about Poland, but I wouldn’t have wanted to live there any time in the 20th century.

In economic terms it has always been something of a laggard.   Here from Angus Maddison’s collection of data are estimates of real GDP per capita for 1870 and 1913 for the UK, France, Germany, the territory that was Polish, and New Zealand.

poland 1

Real GDP per capita in Polish territory (mostly ruled by Russia) was about a third of that in New Zealand.

The Maddison database has annual data for Poland from 1929 (excluding the period of the war), and that ratio of Polish GDP to New Zealand GDP seemed to show no real trend whether pre-war or in the communist years, averaging just a bit more than a third.

poland 2

Relative prices – including the purchasing power parity exchange rates used- matter quite a lot in these cross-country comparisons across time.  So not too much should ever be put on any particular levels estimate.  The Maddison database only comes forward to 2008 and the most widely used current numbers are those from the OECD.  On their calculations, at the end of communism Poland was a bit better off (say, relative to New Zealand) than in the Maddison numbers.  Polish GDP per capita in 1990 is estimated to have been about 44 per cent of that in New Zealand.

Here are the OECD estimates for the period since.

poland 3

On OECD estimates, Polish real GDP per capita hit 75 per cent of that in New Zealand.

Here is the OECD estimates for real GDP per hour worked (for which there are no longer-term historical estimates, but we can safely assume the ratio was very low on average –  perhaps averaging 35 to 45 per cent –  in the century prior to 1990.  In 1993, when the Polish data start the ratio was 43 per cent –  almost exactly the same as for real GDP per capita.

poland 4

Last year, Poland’s labour productivty reached 82 per cent of that of New Zealand.

All of which is clearly very good for Poland.   And it clearly isn’t just that they’d thrown off the shackles of communism: as the earlier charts show, Poland had been a laggard in the 19th century, and in the first half of the 20th century.

But, of course, part of the good news in these charts is a reflection of New Zealand’s own poor long-term performance.

Here are the latest OECD labour productivity (real GDP per hour worked) estimates for the same group of countries as in my first chart above.

poland 5

Last year, for the first time, Polish real GDP per hour worked passed 50 per cent of that in France and Germany.  100 years ago, of course, both France and Germany would have lagged well behind both the UK and New Zealand.

Perhaps Poland will go on to achieve much greater convergence with the other big European economies in the next few decades – we can only hope so –  and yet one can’t help wondering whether the leaders of a newly independent Poland wouldn’t have been rather disappointed if they’d been told that 100 years on their successors and fellow citizens would still be achieving only half the output per hour of the French and Germans.

Then again, they’d probably have been astonished to learn that 100 years on they’d be managing 82 per cent of average New Zealand productivity (and even 63 per cent of that of the British –  leading global power a century ago).

Hard to think though how disbelieving our own leaders would have been 100 years ago if they were told how far we would have fallen relative to these other countries, notably including Poland.     With none of the excuses –   wars, shifting borders, genocide, or decades of communist rule.

I might have a look at the data for a few of the other post World War One emergent countries later in the month.

No plan, but not much sign of aspiration either

There was a not overly good article in the Financial Times yesterday marking the first anniversary of the Labour/New Zealand First (and Greens) government.   Among its odd features was the final sentence which reported the suggestion from political scientist Bryce Edwards that the Prime Minister “is now seen as an icon of good family values”.   Really?  By whom?  The FT’s journalist also claimed that the Prime Minister had achieved “near-celebrity status” abroad.   If that were true I’m not even sure it would be a good thing, but is it?  I read pretty widely internationally and I don’t see much sign of it.

But the primary focus of this blog is still economics, and what really caught my eye was this comment from a former ANZ chief economist:

“I’d give the coalition an A grade for aspiration due to their ambitious reform agenda,” said Cameron Bagrie, founder of Bagrie Economics. “But the problem is they haven’t got an economic plan in place yet.

I’d certainly agree with the second sentence (no plan).  But Cameron Bagrie seems to be far too charitable is his talk of an “A for aspiration”, let alone the puzzling talk of an “ambitious reform agenda”.

Sure, ministers occasionally run the line about building a more productive and sustainable economy, with occasional suggestions of shifting the “growth engines” of the New Zealand economy.  But after only a year it has already become nothing more than a cliche, recycled in speeches and press releases, signifying almost nothing, and with no sign of any passion or serious aspiration underpinning it.

And it really doesn’t mark them out from most of the decades of governments that have gone before them, since the problems  –  and underperformance – of the New Zealand economy first started to become apparent, back in the 1960s.  All of them talk about producing something better and then, after they’ve been in office long enough, start pretending that there really isn’t a problem after all (John Key, you may recall, resorted to talk of “quality problems” –  dreadful congestion, and unaffordable house prices.)   There is talk of a more outward-orientation to the New Zealand economy, of a stronger productivity performance, of closing the large gaps that have opened with the older OECD countries.  And then, in most cases, almost nothing happens.  Governments occupy office, and then leave it, and the fundamental failures aren’t addressed.   Housing is a more recent utter failure than productivity –  only really dating back 25 to 30 years –  and again governments talk about how things will be different, but do little of much substance, and never show any evidence that they care much.  To date, the current government doesn’t look materially different on that count.

Has anyone heard rhetoric from the Prime Minister or her ministers about getting house prices back down again –  to perhaps three times income that looks to have been a longer-term norm?   They won’t even say the words, let alone suggest that have a well-researched carefully thought out plan (economic and political) to make it happen.   There is nothing specific either to their talk of a more productive economy –  no benchmarks to which we can hold them to account, no nothing (and indeed things like the oil and gas exploration ban, and net-zero targets that will likely make it much harder to pursue such goals –  if the government were actually serious about them).   There is no sense of open alarm (which a new government could afford, responsibility for those outcomes not yet resting with them) at five years of very little productivity growth –  even though productivity growth almost alone underpins prospective improvements in material living standards –  let alone the decades of relative underperformance that has helped give the outcomes the government probably does care about more (eg child poverty), and the decades-long exodus of New Zealanders to Australia.  If there is “aspiration” –  as Bagrie suggests –  around economics it seems to involve using just enough of the right words to get and hold office.

I wrote the other day about the vacuous nature of the new Business Advisory Council (and a Herald columnist had some other criticisms which mostly rang true). The Prime Minister talked up the Council when she first launched it, but which seems more likely to be a sop to the (upper end) business community than a sign of, or source of serious ideas for, any serious commitment to a much better economic future.  There isn’t a plan –  that much is obvious.  But there is also no sign of a serious aspiration –  the sort that shapes how the government operates in its determination to give concrete form to a better future –  either.  Sadly, that doesn’t mark them out from their predecessors.

What if they really were serious?  Well, of course, then they’d have used the long years in Opposition rather better.  That is water under the bridge now.   But even now they could be looking seriously for some better, more compelling, answers.

Business leaders aren’t typically the place you would be looking to find those sorts of answers –  an economy is, in crucial ways, not like a company.   Economists, for all their faults, are much more likely to be able to help in getting to the bottom of the problem, and identifying policy measures that have a serious prospect of making a real difference.  There are stories and proposed solutions around.  I’ve been developing one, and arguing it here, for some years, but I’m not alone.  Paul Conway at the Productivity Commission has also developed sustained analysis and arguments about the productivity failure –  in some areas, his analysis overlaps with mine and in others not.  If the leadership of the key government  agencies –  Treasury and MBIE –  is beyond hope, there are still individuals in Treasury (in particular) who have thought hard about, and written on, some of these issues.  There are people like David Skilling, now based offshore but formerly at Treasury and the New Zealand Institute, and the academic Phil McCann.  There would, no doubt, be others who would invest in the hard thinking and analysis if a government were to show signs that it was really serious about New Zealand doing better.

I’ve argued for years that what is needed is a serious contest of competing narratives –  credible, well-documented, stories, well-grounded in the specifics of New Zealand’s situation and experience that explain New Zealand’s underperformance and how any policy proposals fit in to such a narrative.   Probably no one story or set of proposals will get everything right, but the active contest of ideas and arguments is a big part of the way in which we could make progress towards a deeper, and shared, sense of what has gone wrong and what could –  and should – be done in response.

But, of course, there is no sign that the Prime Minister or the Minister of Finance, or the leaders of her coalition/support parties, care.  There is no sign that they have anything like the sort of aspiration –  on matters economic (including housing) –  that the Financial Times reports Cameron Bagrie suggesting they have.   That is beyond a shame, and more like a disgrace –  like their predecessors, people who hold office and yet do little or nothing, presiding over a continued relative decline of a country once the most prosperous on earth, that once –  and not that long ago –  had affordable housing for its people.

The void where an economic strategy should be

During the week, rather lost amid the Jami-Lee Ross claims and counter-claims (how did a major party have the indecency to keep on rapidly promoting the man when their hierarchy clear knew at least a couple of years ago –  and kept quiet about – his character?  Unless of course, the main required quality for a National MP is now fundraising –  often of the most questionable kind –  not character or legislative/policy skills) the Prime Minister announced the membership of her Business Advisory Council.

This is the group

Prime Minister’s Business Advisory Council members

Christopher Luxon (Chair)                  Air New Zealand
Peter Beck                                                Rocket Lab
Barbara Chapman                                 Professional director
Jacqui Coombes                                   Bunnings
Anna Curzon                                           Xero
Andrew Grant                                        McKinsey & Company
Miles Hurrell                                          Fonterra
Bailey Mackey                                        Pango Productions
David McLean                                        Westpac
Joc O’Donnell                                          HW Richardson
Gretta Stephens                                     Bluescope/NZ Steel
Rachel Taulelei                                      Kono
Fraser Whineray                                   Mercury

And the terms of reference are here.

Here is how the Prime Minister’s statement begins

Prime Minister Jacinda Ardern has announced a diverse cross section of leaders from the business community will form her Business Advisory Council to advise the Coalition Government as it works on building a productive, sustainable and inclusive economy that improves the wellbeing of New Zealanders.

And here is how she was talking a couple of months ago when the Council was first foreshadowed.

“The Council will provide a forum for business leaders to advise me and the Government and to join us in taking the lead on some of the important areas of reform the Government is undertaking,” said Jacinda Ardern.

“The Council will report to me on opportunities it sees and identify emerging challenges. It will bring new ideas to the table on how we can scale up New Zealand businesses and grow our export led wealth.

“I want to work closely with, and be advised by, senior business leaders who take a helicopter view of our economy, who are long term strategic thinkers who have the time and energy to lead key aspects of our economic agenda.

Perhaps all the people on her group are very able at what they do.  Perhaps many are even good at thinking about the implications for their own businesses of specific technical advice.

But not one of them seems to have the background or skill set that suggests they have anything more to add to fixing New Zealand’s woeful economic underperformance –  over multiple decades –  than, say, the first 100 people in the Wellington phone book.

Drawing on old article from Paul Krugman, when this Council was first announced I wrote a post about how a company is not a country, and the skills that equip someone to run a company bear little or no relationship to those involved in identifying the economic failings, and appropriate remedies, for a country.

Expertise on economic management, and the particular confounding challenges the New Zealand economy faces, just aren’t the sort of thing that tends to be fostered in the course of a corporate career.   Many of these people might have been superb marketers, exceptional operations managers, corporate finance whizzes, smooth operators around the edges of regulation and the tax system, and have risen to assume overall responsibility for (by New Zealand standards) fairly large organisations. They are absolutely vital skills, and business roles done well are a big part of how, in pursuing the interests of shareholders, society is also made better off.   But those skills bear no resemblance to the issues involved in addressing long-term economic underperformance.  For a start, the things businesses have to take as given are precisely the sorts of things governments often can vary, and (as Krugman eloquently notes) the sorts of constraints even a large business faces are very different from those an entire economy faces.   And so on.

It is great that these individuals care about New Zealand’s economic performance, but there is no particular reason to believe that in general they will have more useful perspectives to offer than the average moderately-educated voter chosen from the phone book at random.  Running a business no more equips you to provide useful advice on economic policy more generally (as distinct perhaps from specific bits around your industry) than it does to, in Krugman’s words, write great poetry or make military strategy.

What isn’t clear is whether the Prime Minister genuinely expects this group to make a difference –  successfully identifying the key issues governments need to address –  or is simply buying a bit of time and goodwill with the big end of town in the hope that something will turn up.   One interpretation would suggest extreme naivete and the other a quite cynical approach.  Take your pick which you think is worse.  Perhaps it is just wishful thinking?  But whatever the answer, a year into the government’s three year term, there is no economic strategy, nothing that anyone credibly thinks will lift our long-term productivity underperformance, successfully reorient the economy outwards.    For a short time perhaps any goodwill around the creation of this council will paper over the void…..but a void it is.

Meanwhile,

  • the level of productivity is flat or even falling,
  • the export and import shares of GDP have been falling,
  • in per capita terms, the tradable sector of the economy hasn’t grown at all this century.
  • (and if we want to talk “inclusion” there is no sign of a structural fix to the housing o or urban land supply market),
  • while we are left with a structurally overvalued real exchange rate and the highest average real interest rates in the OECD.

 

Sluggish productivity growth and financial crises

There has been some interesting material around recently on how many advanced economies (in particular) have undershot over the last decade or so the trends they appeared to be on previously.  Paul Krugman had an interesting column a couple of weeks back, and then the IMF had a whole chapter in their  latest World Economic Outlook on “The Global Economic Recovery 10 Years After The 2008 Financial Meltdown”.   Martin Wolf summarised and illustrated some of that chapter in his FT column last week.  Much of this work attempts to associate (causally) subsequent disappointing economic performance with the financial crises of 2008/09, something I’ve long been a little sceptical of.    The IMF also highlights that countries that didn’t have a financial crisis have shared in the underperformance.

I might come back to the IMF material (in particular) later but reading it prompted me to check out some New Zealand data.

As context, here is some OECD data for labour productivity (real GDP per hour worked) for the G7 countries as a group.

G7 productivity

The trendline shows what might have happened if the trend growth to 2005 had continued.  The gap at the end of the period is equivalent to a productivity shortfall of around 15 per cent.    Note that this productivity slowdown was clearly underway well before the financial crises.

And here is the New Zealand data.  Here I’ve used quarterly data, all the way up to 2018q2.

nz productivity

But this time the trendline extrapolates the trend in the actual data up to early 2012.  Because up to about that time there was no particular sign of a change in the trend. (And thus between 2005 and 2012 we actually did a little better than the G7 as a whole).

Over the six years since 2012, the gap between the actual data and the trendline translates back to a shortfall of about 8 per cent.  Real GDP per hour worked now would be around 8 per cent higher than it actually is –  with all the attendant implications for wages, consumption possibilities, and even government revenue – if that pre-2012 trend had been sustained.  And the pre-2012 trend had been pretty weak –  mostly we’d still been falling behind the rest of the advanced world.

It is always possible that much of the recent productivity shortfall will be revised away –  SNZ have, over the years, delivered some significant changes in history at times.  But I’m not aware of any particular reason to expect significant revisions (in any particular direction), so we simply have to work with the data we have.

As the G7 countries didn’t have a financial crisis in 2005, we didn’t have one in 2012.  In fact, we hadn’t had a systemic financial crisis at all since the late 1980s, and the localised (severe in the sector, but small economywide) finance companies crisis had been centred back in 2007 and 2008.  For New Zealand, there simply isn’t a plausible story in which financial crises –  domestic or foreign –  can explain our dismal productivity performance over the last half decade or more.    Neither the timing, nor the stylised facts around the New Zealand financial system, fit.

There are reasons why for countries at the productivity frontier a major financial crisis could impair domestic productivity growth even in a country that did not itself have a domestic financial crisis, but that isn’t a very relevant story here, New Zealand average productivity being so far below that in the leading group of countries (where productivity is about two-thirds higher than in New Zealand).

I’m not sure I have a fully compelling explanation for why New Zealand has done so poorly since around 2012 (my standard story encompasses several decades of persistent gradual  –  cumulatively stark  – underperformance, and period since 2012 looks –  on current data –  to have been unusually bad).   Perhaps the earthquakes, and the subsequent diversion of resources to a lot of vital, but low productivity, repair and reconstruction work is part of the story (as we knew from day one, in economic terms it was a nasty non-tradables shock that wasn’t going to be helpful).  Then again, the peaks of that work are now well behind us, and productivity growth has yet shown signs of improving.  Perhaps the strong terms of trade have been part of the story –  not stimulating business investment, which has been persistently weak, but boosting incomes and perhaps crowding out other stuff.  The real exchange rate –  not an exogenous influence –  got back to pre-recession levels from about mid-2011.   And, of course, the very sharp and substantial turnaround in the net immigration numbers –  also mostly not an exogenous development –  was getting underway from later in 2012.

Whatever the full explanation, the symptoms (eg weak business investment, shrinking exports and imports as a share of GDP) should be worrying, the outcomes (productivity, and thus potential incomes) are dreadful –  building on earlier decades of underperformance –  and the explanation can’t credibly lie in financial crises, domestic or foreign.

And nothing serious is being done about addressing this failure, by the last government, by the present one.  And The Treasury –  principal adviser to the government on such matters –  seems much more interesting in its Living Standards Framework and esoteric (and sometimes convenient) concepts of “wellbeing” than in actually advising on remedying the New Zealand productivity failure.

nnn

Not much business investment

Yesterday’s post was prompted by looking at the export and import data in last week’s GDP release.   Today’s is prompted by looking at the investment data.

The latest quarterly data wasn’t that interesting in itself –  business investment fell a bit, but from quarter to quarter there is quite a bit of noise, and not much can be read into a single quarter’s data.

But here is a longer view on a proxy for business investment spending as a share of GDP (total gross fixed capital formation less residential investment less government investment spending), using the annual data back to the year to March 1972. The latest quarterly observation is almost exactly the same level as the final (annual) observation on the chart.

bus investment sept 18

Years into the recovery, after several years of very rapid population growth, business investment as a share of GDP has crept back up to levels that are only higher than seen in past recessions.  And by international (OECD) standards, business investment as a share of GDP has been low in New Zealand for decades.  It is consistent with the story numerous analysts have highlighted over the years: one of the proximate symptoms of our long-term economic underperformance is that firms haven’t found it worthwhile to invest more heavily here.   The last few years look as if they simply reinforce that story.

(And that isn’t, of course, because we have too many houses for our people.  If anything, we have too few, so when people –  like the Minister of Finance –  talk of shifting investment from housing to other things, while not changing anything about population growth, it is meaningless or worse.)

That first chart, which I’ve shown previously, is the flow –  each year’s new investment as a share of total GDP that year.  But this chart uses the stock figures: SNZ’s net capital stock (total less residential less government) relative to GDP.  That takes account of depreciation, and also of the changing growth rate of the population.

bus cap stock

The business capital stock (as estimated by SNZ) hasn’t been growing relative to GDP for over 40 years.  Over most of the last decade that ratio has been shrinking (and although these data are available only to March 2017, it seems unlikely anything in the last 18 months will materially alter the picture).  Businesses –  as a whole – simply haven’t found it attractive to invest and grow here.

The government is very keen on promoting R&D spending, rushing to put in place new and bigger subsidies without much evidence of having thought much about why it might not be attractive to profit-maximising firms to spend more here.

R&D is included in both the annual new investment spending shown in the first chart above and in the net capital stock data shown in the second chart.   SNZ don’t provide a breakdown between government and private components, but for what it is worth I found this chart interesting.

R&D capex

If anything, R&D spending seems to have been holding up quite a bit better than overall business investment and the business capital stock.  Which tends to reinforce my doubts about why more taxpayer money should be thrown at this type of spending.  Overall R&D spending might be quite low by advanced country standards, but so is business investment more generally, and so is foreign trade.  My hypothesis is that all three things are related, and that there is no obvious reason (and no analysis the government has advanced) suggesting that the root cause of the problem is insufficient subsidies for R&D spending.

On a completely different note, tomorrow I’ll take a lot at the latest from the Reserve Bank: Adrian Orr and the tree gods.

 

Once were traders

For small countries in particular, foreign trade is a key element in economic prosperity.  Firms in your country develop products and services that people abroad want, and that enables your citizens to consume from the wider range of products and services the rest of the world has to offer.  It isn’t just final products, but trade in intermediate goods and services (inputs to other production) also enables specialisation and the general gains from trade.

Foreign trade wasn’t always important in the islands of New Zealand.  For the centuries after first settlement there was none.  And (although not solely for that reason) the people –  Maori –  were poor.   In modern New Zealand, foreign trade has been critical: 100 years ago there was a widely cited claim that New Zealand did more foreign trade per capita than any other country.  Hand in hand with that, we were among the countries with the highest incomes per capita.

But no longer, on either count.

The latest quarterly numbers out last week did show an uptick in both exports and imports as a share of GDP.  But here is the chart back to 1972 –  annual data, plus the latest quarterly observation.

external trade share

The foreign trade share has been, at best, static for almost 40 years (in most countries they’ve been increasing).  The last few years have seen the trade share the weakest for almost 30 years (and the late 80s construction boom).  I’ve highlighted the only three occasions when exports and imports have averaged 30 per cent or more of GDP: the year to March 1985, the years to March 2000 to 2002, and the year to March 2009.   What was the common feature of those years?   It wasn’t the stellar success of outward-oriented businesses.  It was the (unexpected) severe weakness in the exchange rate: the devaluation of 1984, the period around the end of the dot-com boom when US interest rates were high, and New Zealand (and Australian) dollars were unattractive, and the international financial crisis (and extreme risk aversion) of 2008/09.   Based on the rest of the set of New Zealand policies, those low exchange rates weren’t sustainable, and there was a relatively quick rebound.

What of other advanced countries?

Big countries tend to do less foreign trade (share of GDP) than small countries.  That is no surprise, as there are many more markets and opportunities for specialisation (gains from trading) close to home.  Here are the OECD countries that in 2016 (last year with complete data) had exports and imports averaging less than 30 per cent of GDP.

Australia 21.0
Chile 27.8
Italy 29.0
Israel 28.2
Japan 15.6
Turkey 23.4
UK 29.1
USA 13.3

Of them, Italy, Japan, Turkey, the United Kingdom and the United States are big countries and big economies.    You’d expect to find them on this table, and if anything the anomaly is Germany, with a foreign trade share now in excess of 40 per cent of GDP.

Of the remaining countries, there are

  • Australia, with five times our population,
  • Chile, with more than three times our population, and with the second lowest labour productivity in the OECD (beating only Mexico), and
  • Israel, which isn’t much larger than New Zealand but which –  as I’ve highlighted here previously –  has a similarly lousy productivity growth record.

And all, in one form or another, with severe disadvantages of distance.

There has been a tendency in some circles to excuse New Zealand’s low foreign trade shares by citing distance, but simultaneously a reluctance to take seriously what is implied by that limitation.  If the opportunities for foreign trade from this remote location don’t look particularly good, isn’t there something deeply illogical (or worse) about continuing to use policy (as successive governments have done for last 25 years) to drive up our population –  more people in an unpropitious location?  All the more so when adopting that policy approach also involves driving the real exchange rate up, away from where it would likely settle otherwise.  Not all New Zealanders suffer in the process –  if you run a business geared, in effect, solely towards population growth you may well flourish –  but New Zealanders as a whole have.

For all the occasional talk about rebalancing the economy (from both main parties, at least when they first take office) none of it seems to take any serious account of this constraint.   Which is only set to become more seriously as –  relative to other countries –  the opportunities here shrink with the apparent determination to pursue net-zero emissions targets.  Planting (lots more) is unlikely to be a path to sustained prosperity or higher productivity.

These days, New Zealand’s per capita foreign trade will among the lowest in the advanced world.   Among the rich countries, only (very big) Japan and the United States will be materially lower than us.  It isn’t a mark of a successful economy.  But neither government nor opposition have any real strategy –  or interest? –  in turning things around.

A picture in continuity

Here is a summary chart of the real GDP outcomes for the June quarter (expenditure and production), the hours outcomes (QES and HLFS), and the implied change in labour productivity (real GDP per hour worked), taking the average change in hours worked from the average growth in real GDP.

GDP q2 1

There was quite a bit more activity all round, but it took a larger percentage increase in labour inputs (hours) to get the published percentage increase in output (GDP).  In other words, labour productivity fell: not just the growth rate, but the level.

Here is the same chart for the previous quarter.

GDP q2 2

It was worse: less GDP growth, but also an even larger fall in GDP per hour worked.   Productivity growth for the first half of the year was -0.65 per cent.  That isn’t an annualised number, but an absolute change; a significant fall.

Perhaps you think this just shows how dreadful the new government is.  Here is the same chart showing the cumulative growth rates for the last six months of last year (in blue) and the first half of this year (in orange).

GDP q2 3

To me, the similarities are (much) more striking than the differences.    Importantly, the level of labour productivity fell in both halves.

Looked at from a productivity perspective –  and that really is where one should focus, especially when the unemployment rate is not too far from the NAIRU – it is a pretty dreadful performance.    Of course, simply looking at two six month periods on their own doesn’t tell one much, but nothing in these data is inconsistent with the poor productivity record for some years now.

And neither the last government nor this one appears to have any serious ideas for, or any serious interest in, fixing this failure.