Liam Dann, Business Editor at Large for New Zealand’s Herald, works as a writer, columnist, radio commentator and as a presenter and producer of videos and podcasts.
Subscribe to listen
Access to Herald Premium articles require a Premium subscription. Subscribe now to listen.
Especially if you are answering questions about why the second quarter GDP collapsed.
It also sounds relatively benign if a little rickety, like an old Raleigh Twenty bicycle.
For those who aren’t old enough to get that reference, the Raleigh Twenty was a British-designed, New Zealand-made bicycle that kids of my generation suffered until we were old enough to get a 10-speed.
Like the typical New Zealand economic cycle, it could get you from A to B, but it suffered from fundamental structural flaws that meant it would never reach impressive speed.
A classic Raleigh 20, c1970, has similar properties to New Zealand's current economy. Photo / Duncan Brown
What the Prime Minister means is that the current boom in export prices is pumping cash into the rural economy.
Farmers and those in the adjacent communities are doing quite well this year.
But there are a couple of reasons why the two-speed economy provides me with little comfort about the current state of the economy (and not just because the wheels might fall off if we ever do get up to top speed).
First of all, a two-speed economy implies a far more even split in the economy than actually exists.
Despite the popular perception of New Zealand culture as rugged, agrarian and generally outdoorsy, it is one of the most urban in the world.
This is not a 50/50 two-speed economy. It’s not even close.
According to The World Population Review, 87% of New Zealanders live in urban areas.
According to that data, a higher percentage of our population lives in cities than is the case in South Korea, Taiwan, the US, Germany, or Britain.
High agricultural export prices have certainly put a spring in the step of rural communities as farmers start to reap the good returns.
But, not to labour the point, Kiwis overwhelmingly live in the bit of the economy that sucks.
A simple way to characterise it might be to divide the economy between those who make butter and those who just eat it.
New Zealand is an agricultural economy when it comes to exports. And that’s important because it brings in the best kind of foreign currency (the kind we don’t have to pay back).
But, like most developed economies, it is the service sector that accounts for the bulk of GDP.
In fact, according to Stats NZ, the primary sector accounted for just 5.8% of total GDP in the June quarter. Services accounted for 73.6%.
That explains why the GDP result was so terrible despite the positive story in rural regions.
The other issue I have with the two-speed economy is that the strong rural recovery highlights how utterly miserable the domestic recovery has been.
The dairy, beef, lamb and kiwifruit sectors are all booming, with strong market prices and good production volumes.
To some extent, we’ve been lucky with this cycle. It doesn’t bear thinking about how bad the downturn would have been if export prices were down.
And it puts some urgency into the need for the rest of the economy to recover.
If there’s one thing 25 years of market watching has taught me, it’s that if prices are up now, they will probably be down later.
Historically, there has been a yin and yang-like aspect to New Zealand’s two-speed economy.
When the rural export sector is struggling, the economy is often led by urban property booms.
It would be nice to see both fire at once. It would be a worry if export prices fall while the urban economy is still missing in action.
I do remain convinced we’ll eventually get a domestic economic recovery one way or another.
All that export money will filter through the economy eventually, and interest rates will eventually go low enough to flick the switch on the property and construction sectors.
But public confidence is a crucial piece of the puzzle. Until city-based consumers start spending again, GDP will be sluggish.
There are signs of life. Card spending data has been ticking up.
The latest ANZ Consumer Confidence survey was released on Friday. It was almost heartening, but it had a nasty sting in the tail.
Consumer confidence rose 2.6 points from 92 to 94.6 in September, recovering from its August result when it reported its lowest level in 10 months.
“The data preceding the GDP release averaged 96, while the responses that came in afterwards averaged just 77,” ANZ chief economist Sharon Zollner said.
“It’s important to note that the latter sample is very small (only 60 people, 6% of the sample), so the uncertainty about whether this is an accurate estimate of the national mood is high.”
While she warned she should take that late slump “with a large grain of salt”, she also said it was plausible there could have been a big impact, considering a similar occurrence happened in 2024.
I hope it was just a statistical anomaly.
If we let headlines about a lousy second quarter affect our confidence now, we’ll find ourselves stuck in a hopeless, self-fulfilling feedback loop.
The fourth quarter of the year starts next week. Daylight saving is here already.
It’s time to change gears.
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.
Catch up on the debates that dominated the week by signing up to our Opinion newsletter – a weekly round-up of our best commentary.
