Liam Dann on business

Business editor of the New Zealand Herald, Liam Dann, discusses New Zealand and international financial matters

Liam Dann: Rock star economy, but which rock star?

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More innovative spark is needed for the next phase of the economic cycle. Photo / Thinkstock
More innovative spark is needed for the next phase of the economic cycle. Photo / Thinkstock

It's good that Australian economist Paul Bloxham, who last year dubbed New Zealand the rock star economy, thinks we're still rocking. HSBC's Bloxham has the international perspective to remind us how well we are doing relative to all our peers in the Western world.

But even after the solid GDP result last week there remains a nagging doubt that we're not really the kind of rock star that sets the world on fire.

Construction and dairy are driving this growth cycle. It's all so solid, safe and predictable. Let's face it: we're the Hollies, not the Beatles, we're James Taylor when we could be Bowie, Coldplay when we ought to shoot for Jay-Z.

If we're ahead of the international pack in the recovery stakes, is it because we are so strong or because the standard is low?

We are certainly still highly reliant on the construction sector and the earthquake rebuild for a large part of our growth.

Agriculture remains the other bright spot. We've been fortunate to get a sweet spot in the commodity cycle in tandem with a couple of years without a serious drought.

Our growth rate - an annualised 3.3 per cent - is ideal, this economy in its current structure couldn't handle much more. We're at capacity now. Hopefully that is enough that we should start to see some increased wealth flow through the wider population.

But for this level of growth to make a difference at all tiers of society we will need to sustain it for several more years.

It's hard to see how that will happen once construction peaks and commodity prices ease.

History would suggest we're soon due another GDP-crushing drought. It is always worth repeating that it was drought that tipped the New Zealand economy into recession in 2008, not the global financial crisis. We were ahead of the rest of the world then, too.

As Government accounts improve we may see a loosening of spending. Three more years of Bill English's steady hand seem increasingly likely. That may set the scene for another era of centre-left stimulus from 2017.

But this is all standard cyclical stuff. It might be slick, well managed and well performed but it is not innovative or transformational.

That is the magic ingredient that makes good rock stars great. It is why Jimi Hendrix is the gold standard no matter how much faster others can hit the notes. Our economy needs more of that flair.

If National is at the helm again after September 20 then injecting some more innovative spark needs to be one of their goals for the next phase of the economic cycle.

Now's the time to try things - when business is ticking over and the balance sheets are strong. The next couple of years may offer a rare window for New Zealand to set itself up for the next 20 years rather than thinking about the next three.

John Key and Bill English should be looking to their legacy and in Steven Joyce they have a modern, practical business thinker who understands the potential of our technology sector.

Meanwhile, if there's a proper glammed up strutting rock star in the New Zealand economy now it is our capital markets.

New listings to the NZX seem to be coming at an unprecedented pace. Every other day brings new speculation about who's next and another press release confirming last week's hot tip.

The market boom has the potential to drive some significant transformation for the economy as it unlocks capital for smart young companies to expand.

Certainly the rapid-fire nature of the IPO boom - 10 listings last year and on track for at least another 10 this year - is more dramatic than it was even last decade before the GFC.

Probably only the 1980s boom years surpass the current period for buzz about stock market listings. We all know where that ended.

Yes that is the thing about rock stars: they stand out, burn bright and often burn out. But the very best of them keep evolving, move with the times, reinvent themselves and never stop looking for new markets.

- NZ Herald

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