NZ's economy was once described as a rock star...can it be again? NZH File pic
OPINION
Welcome to Inside Economics. Every week, I take a deeper dive into some of the more left-field economic news you may have missed. To sign up to my weekly newsletter, click on your user profile at nzherald.co.nz and select “My newsletters”. For a step-by-step guide,
Q: Hi Liam,
Great article about the trade deficit.
One side of the equation is exports. Your book BBQ Economics comments on our exports being mostly commodities, highly dependent on global markets. Re: the Reserve Bank’s May MPS comments on our goods exports dropping from 22% of GDP to 18% over the past 10 years and being unlikely to improve, especially due to the slowing growth of China... are we heading towards a slow-burning crisis?
– Kushlan Sugathapala
A: Hi Kushlan, this is a well-timed question as I’ve just spent some time catching up with senior HSBC economists Paul Bloxham and Fred Neumann, who respectively cover Australia/New Zealand and China/Asia.
China’s economic slowdown and concerns about the problems it might cause for export economies like Australia and New Zealand were very much top of the discussion topics.
I would say that it is probable that the pandemic stimulus and the growth of the public sector as a proportion of GDP have probably put some downward pressure on exports as a percentage of GDP.
But broadly speaking, there are serious concerns about export growth levelling off with China’s growth.
It was interesting to hear from Bloxham about how similar the concerns being voiced in Australia are right now. Effectively you can swap the “dairy” for “iron ore” and have much the same discussion on either side of the Tasman.
“What’s next” is the big question across the ditch right now as the lucky country ponders a future where China’s insatiable demand for building materials has stabilised.
In Australia’s case, there is hope that there may be other mineral-based opportunities. They’ve got a whole continent to dig up after all, and that likely includes rare-earth minerals like lithium, which stay in hot demand.
Despite some regulatory tweaks and optimistic rumblings from Resources Minister Shane Jones, it is unlikely that New Zealand has vast deposits of lithium coming to the economic rescue anytime soon.
Bloxham, who famously coined the term “rock star economy” for New Zealand back in 2014, has written a research note looking at what we need to do to recapture that kind of swagger.
A lot of the solutions are in our own hands, he says.
“Many of the fundamental, structural drivers that create global opportunities for New Zealand’s small, open economy are still there. Asia’s middle class incomes are rising, diets are shifting and demand for higher quality food continues to trend higher. Global tourism is growing, recovering from the pandemic, and Asia is leading the way in driving this,” Bloxham wrote.
Neumann, meanwhile, wasn’t terribly gloomy about China’s long-term prospects. He certainly didn’t sugarcoat anything about the near future: China has a property market problem that is likely to take another two years or so to unwind, he said.
That is creating headwinds for construction and for consumer demand.
While there have been interest rate cuts and some regulatory tweaks, it seems that officials in Beijing are determined to avoid any large-scale stimulus packages and want to let property oversupply unwind naturally.
Yesterday, a range of new economic support packages were unleashed from Beijing but economists still see them as falling short of the kind of major stimulus that might have been considered several years ago.
“The package included a reduction in the required reserve ratio for banks and cuts to interest rates as well as measures targeted at the property market. But yesterday’s package is far from being a bazooka, in comparison to past measures,” wrote ANZ economists.
“Without the presence of other ministries, we have concerns about how effective these stimulus measures will be. China seems to have fallen into a liquidity trap, with monetary policy stimulus unlikely to be sufficient on its own. In our view, an aggressive fiscal policy is required. "
A lot of the weakness in our current economic situation could be resolved with some internal policy shifts – many of which the current Government is working through, said Bloxham.
The key was to lift local productivity and lower local costs to look as attractive to investment as possible, including for foreign capital, he said.
A part of that involved addressing New Zealand’s infrastructure deficit. Bloxham said the planned National Infrastructure Agency could help with that.
“On agriculture, a focus on land-use intensity, alongside a move to higher-productivity agricultural products, such as poultry, aquaculture or plant-based foods, offers an opportunity for productivity gains.
“Recent policy changes to the Overseas Investment Act may also help, having lowered barriers to foreign investment. Encouraging more competition is also key.”
In the meantime, China is facing continued demographic challenges, which bring risks around Japanese-style deflation.
But let’s keep it in perspective, Neumann says. Chinese growth might be slowing but the scale remains more than enough to offer continued export opportunities to New Zealand. He’s still picking that China’s GDP will grow at 4.9% this year.
Neumann is a lot more bullish about growth in the rest of Asia in the immediate future. He sees a great opportunity for New Zealand to leverage the Asean trade agreement and the potential to benefit from the incredible Indian growth story.
While subdued Chinese tourism is impacting our sector, Neumann says we should be looking to leverage the opportunities in India, where the burgeoning middle class is heading off on international holidays in record numbers.
One thing I did take away from my meeting with Bloxham and Neumann was the sense that we might all be getting a bit pessimistic about New Zealand’s longer-term economic prospects.
It might just be me. But then I generally land at the more optimistic end of the commentary spectrum so I make a point of reading comments and listening to feedback.
We are pretty gloomy in our outlook right now.
Take last week’s GDP data as an example. It actually landed quite a bit better than expected – a contraction of 0.2% versus Reserve Bank (RBNZ) expectations of 0.5%.
You wouldn’t have noticed that based on the headlines, which all focused on looking back at dismal per capita GDP over the long two-year recessionary period we’ve been through. None of that stuff was new. We just seemed to want to wallow in it all and there wasn’t much room for optimistic takes on our outlook.
I’ve been particularly worried by the added headwind that rapidly falling net migration might bring to construction, housing and consumer spending.
But I have to say both Neumann and Bloxham seemed a little taken aback by my pessimism about New Zealand’s prospects of overcoming structural challenges around export growth and productivity.
As mentioned above, Neumann was particularly bullish about the growth prospects for the wider Asian region and struggled to see why New Zealand wouldn’t be a significant beneficiary.
It was a reminder that we can get a bit insular in this country, especially at the end of a long winter.
Australia – has predictably – avoided recession while we’ve struggled through at least two (probably) three in the past two years. That’s even though we’ve followed a fairly similar pandemic path of stimulus and inflation. One thing that is becoming clearer is that we are taking very different approaches to monetary policy.
The Reserve Bank of Australia left its Official Cash Rate on hold again yesterday. Admittedly it’s still lower than ours at 4.35% (versus 5.25%) but we seem to be a lot more aggressive on this side of the Tasman – both on the way up and the way down. Inflation in Australia is now 3.8% – having risen from 3.6% in the first quarter.
It’s just 3.3% here and expected to drop below 3% at the next print (third quarter) on October 17.
So it looks like New Zealand is well and truly winning the race to get inflation down. Whether the price we paid to do that was worth it is another matter.
After all the hype last week about New Zealand’s dismal GDP output, here comes the alternative data set measuring all those good things that money can’t buy.
Today, Stats NZ will release a large set of data capturing the the state of New Zealand’s wellbeing across 2023.
In last week’s column, I looked at some of the major criticisms of GDP as a measure of economic progress. Chief among them is that GDP doesn’t measure happiness or general wellbeing.
So regardless of how we chop up our economic output, we are only measuring things that we can buy or sell. And while the research shows that financial wealth and happiness correlate for a while, there is a point at which returns diminish and the correlation breaks down.
American economist Richard Easterlin developed something called the Easterlin paradox. He found that while incomes had more or less doubled over time, happiness levels hadn’t moved.
So, as countries moved from poor to wealthier, national happiness rose for a while. But there was a point where it plateaued and stopped growing even as people got wealthier. Adding more wealth no longer added to other measures of personal wellbeing.
That’s why the list of happiest nations in the world isn’t the same as the list of countries with the highest GDP per capita. Finland, Denmark and Iceland are the three happiest (World Happiness Report). Luxembourg, Ireland and Singapore are the top-three wealthiest (GDP per capita).
I think it’s important to add a caveat that all of the top 10 happiest nations are wealthy. Being rich isn’t a sufficient condition for happiness – but it helps.
New Zealand – for the record – ranks 12 on the happiness list, one behind Australia on the list (probably the weather right?)
That’s one of the reasons I’m still a champion of good old GDP as a measure of economic progress.
According to Stats NZ, today’s release draws on data from the General Social Survey collected between May 15, 2023 and April 21, 2024.
“It provides information about social wellbeing measures and how our society works together in Aotearoa New Zealand, and insights on different aspects of wellbeing including individual and collective wellbeing, overall subjective wellbeing, culture and identity, health, social connectedness and loneliness, safety and security, housing and physical environment.”
If that all sounds a bit wishy-washy, there are some “material wellbeing” measures included in the mix along with some stuff about civil and cultural participation.
The last time the data was released was 2022 (for the 2021 year). Somewhat overshadowed by the Covid pandemic, it nevertheless showed that 81% of people in New Zealand (aged 15 years and over) rated their overall life satisfaction at seven or above on a zero to 10 scale (where zero is low and 10 is high), with a mean rating of 7.7.
This was unchanged from 2018.
Older people remained the most satisfied with their lives, with a mean rating of 8.0 for people aged 65 years and over, and a mean rating of 8.3 for those aged 75 years and over. Almost half (49.6%) of people aged 75 years and over rated their overall life satisfaction at nine or 10.
I suspect that the second half of the pandemic and peak inflation may have left us feeling a bit less satisfied in 2023. But it will be interesting to see. Perhaps I’m just being pessimistic again.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003. To sign up to his weekly newsletter, click on your user profile at nzherald.co.nz and select “My newsletters”. For a step-by-step guide, click here. If you have a burning question about the quirks or intricacies of economics send it to liam.dann@nzherald.co.nz or leave a message in the comments section.
Japanese food group Meiji is listed on the Nikkei 225.