Encouraging data on productivity suggest economic growth has owed more to inspiration and less to perspiration than previously thought, economists say.
ANZ National Bank economists say the country may be capable of sustaining an economic growth rate of around 3.5 per cent without inflation becoming a problem, which would make
it one of the better performers among developed countries.
They were commenting on new data released by Statistics New Zealand last week that showed labour productivity - output per unit of labour, measured by paid hours - has grown by an average of 2.4 per cent a year since 1993 and 2.6 per cent since 1988.
That compares with a traditional estimate of about 1.4 per cent a year since 1988.
However, for reasons of data quality and comparability with Australia, the Statistics NZ figures only cover about two-thirds of the economy, excluding many service sectors.
The sectors excluded, like health, education and business services, are more labour-intensive and have accounted for most of the employment growth in recent years. Their output - insofar as it is possible to measure it - has tended to grow more slowly than the sectors the Statistics NZ figures cover.
For both those reasons productivity growth in the measured sector will tend to flatter the economy-wide picture.
ANZ National Bank said higher productivity would offset the effect of wage inflation on unit labour costs.
"However, with the unemployment rate at 3.6 per cent the Reserve bank will still take a cautious approach," the bank said.
"Clearly, there is a strong element of inflationary pressure emanating from the government sectors, which is not captured in the productivity statistics, in terms of the pressure it is placing on the labour market through wages and employment."
The latest figures back up research by Treasury economists three years ago that detected a lift in productivity performance over the previous 10 years.
They warned, however, that productivity waxed and waned with the business cycle so there was a danger of mistaking a cyclical improvement for a structural one.
Statistics NZ said labour productivity had grown faster in New Zealand since 1988 than in Australia - 2.6 per cent a year versus 2.3 per cent across the Tasman.
Between 1993 and 2005 economic growth averaged just over 4 per cent a year. Inputs of labour and capital contributed 0.9 and 1.1 per cent to growth respectively.
