Former Economics Editor of the NZ Herald

Economy wound back 7yrs says NZIER

The New Zealand economy has travelled back in time to 2005, a report says.
The New Zealand economy has travelled back in time to 2005, a report says.

The economy is back where it was in 2005, with nothing to show for the past seven years.

That is the conclusion from the Institute of Economic Research which has replicated the Economist's Proust index for New Zealand.

Real gross domestic product per capita, for example, is back where it was in 2005. It got higher than that before the recession, but lower than that subsequently.

Private consumption, again in real per capita terms, is only just back to where it was four years ago.

Real returns on equities have nothing to show for the past eight years, while real house prices are back where they were six years ago.

Real wages have slipped back to where they were three years ago.

And the unemployment rate over the past couple of years has wobbled around a level previously not seen since the year 2000. But if misery loves company, we have enough for a party.

The Economist calculates that in terms of real GDP per capita New Zealand is one of 61 countries to have lost at least five years.

Of the G7 economies only Germany has not gone backwards.

The name of the Economist's Proust index refers to Marcel Proust's masterpiece, A la recherche du temps perdu (In search of lost time), and looks at how many years have been lost by various measures of economic performance.

In terms of property values adjusted for inflation the average American homeowner is living in 2001, the average Briton in 2005.

Greece, Ireland and Portugal have unemployment rates they have not seen since the early 1990s.

NZIER director Jean-Pierre de Raad said that in terms of the overall index, which combines the different indicators, the seven years New Zealand has lost is similar to France and Italy, and better than Britain or the United States at eight and 10 years respectively.

Australia performed better, he said. Its clock has only wound back to late 2008.

"Over the past decade we, and other countries, borrowed growth and income from the future," de Raad said.

We were now living through that future with subdued economic growth while we restored our balance sheets.

"Unlike previous recessions we are not seeing the same bounceback and that is tied to the change in behaviour by firms and consumers and governments around the world following a financial crisis," he said.

"Financial crises are usually followed by a number of years of people rebuilding their balance sheets."

Lost economic time would have long-term implications, for example for the retired whose savings would be smaller or for the unemployed who, if they lost touch with the labour market, would find it harder to get jobs in the future, de Raad said.

The lessons for policymakers were that short-term borrowed growth should not be wasted on poor economic policies that did not address productivity challenges or the issues stemming from an ageing population.

- NZ Herald

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