Editorial: And a happy New Year to the economy

Opinion

Who can resist one last look back? The retrospectives have been written, the themes distilled from the events of another year. But nearly all of them overlooked something, arguably the most important thing, the element of national life that underwrites all our fortunes. It is easy to overlook the economy these days. When it is bad it is in the forefront of our consciousness, when it is good it is taken for granted. It has been good for five years now and the close of a fifth successive year of growth is a moment to observe it.

A few weeks ago the Treasury produced its usual December fiscal update. It made remarkable reading. It noted that the New Zealand economy has been growing ever since its rebound from the 1997-98 recession caused primarily by the Asian financial crisis and two successive summer droughts. Since 1999 the country has maintained good growth despite recession in the United States after the technology bubble burst, the global uncertainties that followed September 11, 2001, dry weather in 2003 that raised electricity costs and reduced farm production, the "Sars" outbreak in Asia and, this year, oil prices at a level unseen since the 1970s.

That the economy has been able to ride over these difficulties is at least partly attributable to the painful reforms undertaken from 1984 to 1993. A sustained improvement in the country's growth rate can now be charted from early 1993. Unemployment also began to fall, from 10 per cent at that point to just 3.8 per cent three months ago. Labour productivity improved measurably over the same period, according to the Treasury.

Good fortune played a part too. From 1999 to 2001 the dollar exchange rate was low and international prices for our main farm exports were high. Then, when commodity prices weakened from 2001 the country experienced an immigration boom. The net migration losses up to 2001 turned into net gains that peaked at 42,500 in the year to May 2003. The new arrivals stimulated domestic activity and a housing boom that carried the economy through a trough in export prices.

This year immigration has fallen and the housing boom has abated. But, as luck would continue to have it, there has been a resurgence in export prices. There has also been a sharp rise in the dollar exchange rate, which reduces exporters' returns, but so far the good commodity prices have provided ample compensation.

Furthermore, the labour market is exceptionally buoyant - so much so that the country has a shortage of labour in even traditional skills such as construction and wages are rising. The strength of the labour market is now helping to sustain strong economic activity as people work longer, earn more, buy more. Retail sales have had a good year.

Little wonder, therefore, that the country moves into another election year in a contented state and the Government bids well to win a third term. It is a Government that likes to criticise the reforms it inherited but has largely left them intact. It would be wrong, though, to deny this Government some credit for an economy that has performed well for all five years it has been in office.

Plainly it has done something right. The main economic alterations it has made have been to boost the bargaining position of trade unions, widen the monetary settings marginally and bank its surplus revenue in preference to lowering taxation. The surplus leaves the Government well positioned to ride out a slowdown, which the Treasury expects in the new year.

But then, the slowdown has been predicted virtually every year that the boom has continued. It may be tempting fate to say the improvement is permanent but it begins to look like it. When we tally up all the blessings this year has brought we should note this fifth successive year of growth and propose a tentative toast - to the economy.