In a
low-key but slightly ominous manner, Fitch Ratings analyst Krisjanis Krustins warned this month that New Zealand could face tougher conditions in the coming 10 years compared with previous periods of growth.
He told BusinessDesk that Fitch sees the drivers of growth in the decade before Covid as having “run their course”.
In other words dairy, tourism and China export growth – while continuing to be large and core components of New Zealand’s economy – can’t possibly continue on the same dramatic growth curve they did before.
So what next?
It’s a big question. I think it’s probably the biggest question facing the nation.
But it is an easy question to ignore while we’re stuck in the last throes of this inflationary fight. It’s not without good reason that we’re obsessed with the near future.
That’s where the bulk of public concerns and complaints about the economy fall. And it follows that is where the media (including me) and politicians put their attention.
We got confirmation we were out of recession last week.
Like most commentators, I took a very downbeat stance on that news. Clearly, we’re not out of this downturn yet.
But I’m not really pessimistic about this economic cycle. It is turning – slowly but surely.
Monetary policy is working.
Okay, so when will non-tradeable inflation fall? Will the first interest rate cut come in November or February? Or could it, as the Reserve Bank says, be as late as September 2025?
I understand these things matter for businesses and homeowners – some of whom may be holding on for dear life. But we are talking about variables of weeks and months now.
That is a very narrow field of vision, especially for policymakers.
When the cycle has turned, where will it leave us? The housing market will pick up, and consumer confidence will return.
We might even feel a sense of normality returning.
But without some big new growth engines to create wealth, we face diminishing returns from each economic upswing.
New Zealand needs to make some bold moves. There seems to be some consensus around that. Unfortunately, there is very little about what those bold moves should look like.
What, if anything, can a government do to drive the next wave of growth?
I don’t think governments should try to pick winners. That’s not what they are good at.
We just need to get the right conditions in place for New Zealand businesses to thrive and expand internationally.
That means a clear and stable regulatory environment with plenty of capital.
I’ve written many times about the need for Kiwis to save more and invest more productively. When we look at richer nations, the answer to why they are richer is often embarrassingly simple – they save more and invest those savings better.
In Australia, compulsory superannuation has created enormous wealth – currently about $4 trillion. But neither major party here is brave enough to even talk about that.
The current coalition Government has made some promising noises about encouraging more foreign direct investment and streamlining the process of getting new infrastructure built.
But like all governments, it is also diverted by pie-in-the-sky notions of economic transformation.
The idea that we’ll mine our way to prosperity is one of those. It may well be an industry worth promoting, but betting the house (or more specifically our clean, green reputation) on it being transformational is just silly.
We mined the big accessible gold deposits in 19th and 20th centuries. The odds of finding valuable rare metals like lithium are very low. It would be great if we did but if that’s this Government’s strategy, they might as well buy Lotto tickets.
Striking oil is also a long shot and the timeframes involved to find it and get it out of the ground take us well past 2030 – the date by which the International Energy Agency has forecast the world will face a “staggering” glut.
If Kiwis ever wanted to be a rich oil-producing nation (and a large percentage don’t) we’ve missed that boat.
When we look at what gave New Zealand a competitive advantage in the 20th, cheap electric power is near the top of the list.
The dairy industry was built on the ability to turn liquid milk into powder more efficiently than our competitors.
The next wave of global economic growth will involve electricity – and lots of it.
Artificial intelligence (AI) is incredibly power-hungry. One Chat-GPT search uses 10 times the power of a Google search.
Throw electric vehicles on top of that and it becomes obvious – only countries with access to a cheap, stable power supply will have a competitive advantage in the years ahead.
There has been plenty of talk about the potential for New Zealand to be a world leader in data centres. To do that, we’ll need more and ideally cheaper power.
Collectively, data centres will consume about 200 megawatts (MW) of electricity at peak usage – roughly the amount required to power some 200,000 homes. The average demand in Auckland is about 1700MW. That has been forecast to rise to 500MW of consumption over the next five years based on current plans.
Given the stability and price of electricity this winter, something has to give.
If the Government wants to fast-track stuff, it would be better served to focus on electricity production. The technology is already here for mass-producing renewable energy – just look at what China and California are doing. And we have the land.
Let’s not do it incrementally. Let’s do it radically and transformationally. That means gearing policy – regulation and tax – to incentivise power companies (local and international) to come here and invest.
The reasons for investment in renewable energy aren’t woke. They are hard-nosed economic reasons.
The odds that investment will pay off are a lot better than rolling the dice on mining. And, yes, it might kill fewer frogs.
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.
