Slow as she goes

NZIER expects 2%-2.5% economic growth over next few years; says recovery will be slower than past recoveries

27th Feb 13, 1:00am by David Hargreaves

<a href="http://www.shutterstock.com/">Image sourced from Shutterstock.com</a>

New Zealand's economy is expected to grow at between 2% and 2.5% over the next few years, according to the New Zealand Institute of Economic Research's quarterly predictions.

"This is an improvement from the less than 2% growth per year over the past three years, but slow compared to past recoveries, NZIER's principal economist Shamubeel Eaqub said.

"The New Zealand economy is recovering from one of the deepest and longest recessions in living memory. The recovery over the past three years has been grudgingly slow," he said.

But reviving credit growth, housing investment and the accelerating Canterbury rebuild suggested that 2013 and 2014 would be better than the past four years.

"The recovery is brittle," Eaqub said.

"Household debt in New Zealand is still high and the rest of the world is not yet out of the woods. The RBNZ will keep interest rates low, but reviving house prices and borrowing will force its hand to higher interest rates and perhaps new macro-prudential measures to curb borrowing from early 2014."

Eaqub said a strengthening recovery would provide much needed relief. For households it meant more jobs and rising incomes. Businesses would enjoy more sales and greater profit margins. The government would enjoy a larger tax take.

"But risks remain. The recession did not purge economic imbalances, such as high household debt and high net foreign liabilities. House prices are lifting again, even though household debt remains high relative to income. This is an emerging risk for the RBNZ to watch," he said.

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

37 Comments

by xingmowang | 27th Feb 13, 9:42am 1361911368

Is growth the only model that every economy should follow?

How about I had enough and I do not want more?

by iconoclast | 27th Feb 13, 10:01am 1361912493

XING: are you a princeling? lots of loot?

by xingmowang | 27th Feb 13, 10:04am 1361912667

Are you afriad of me because I was born on earth but not on your part of earth?

by iconoclast | 27th Feb 13, 10:15am 1361913302

Some are wise .. some are otherwise .. sometimes you can be ambassadorial .. othertimes not

by Ralph | 27th Feb 13, 11:31am 1361917871

There are perhaps a few good reasons to pursue economic growth.

If the job opportunities do not exist the youth of the country will continue to move overseas to find work - which is a bad outcome from a family point of view.

The way the monetary system works to create a small rate of inflation we have to maintain at the very least nominal growth or we are all getting poorer in real terms.

There are too many people in New Zealand who struggle to make ends meet and smart growth can provide opportunity for those people to work their way out of poverty.

There is nothing wrong with improving the quality of material life for people; houses that do not leak, cars that do not break down etc.

by notaneconomist | 27th Feb 13, 10:09am 1361912943

NZ lacks efficient growth which is distorting all the figures and predictions. We must use our resources in the most least costly way to obtain production efficiency.

We all need too realise that supply, demand and efficiency factors are all related.

GDP is a useless tool as it fails to measure essential components and efficiency so we get a distorted picture of the economy.

by steven | 27th Feb 13, 10:16am 1361913408

So like the UK when we have used up all our natural resources what will our kids do?

When we have used up the "most least costly" fossil fuels and whats left costs $90+ a go, what are we going to do?

How will our children and their economy cope with $140? or $200 a barrel? and pay down the debt we have left them?

regards

by Ms de Meanour | 27th Feb 13, 10:34am 1361914449

Well, some will sit around and moan; and others will use the natural resource of human ingenuity to find ways to cope with the reduced availability of other natural resources. These might include, doing less of the things that require a natural resource input, or finding more efficient and sustainable ways to use effectively infinite natural resources such as sunlight and gravity.

Certainly agree that everybody individually, and the nation as a whole, should try not to leave debt to future generations. The Government's trying to do that on the national level, and it's not getting much thanks for it around here.

by steven | 27th Feb 13, 11:37am 1361918241

So in terms of thanks, Im thankful they havent gone the suicideal austerity route some other western nations have and who are paying for it.

Taking classic Keynesian economics then yes the Govn has to step in and spend when the provate sector is not. My preference would have been and is that the Govn taxes at a level to build up a rainy day fund in the good times to pay for the bad without much debt, however that isnt how its gone.

My worry isnt so much the Govn debt but the stupid private debt....

regards

by notaneconomist | 27th Feb 13, 12:09pm 1361920199

Steven - You should be more worried about the Government Debt and less worried about Private Debt. Private debt is where the investment is and what the people are investing in for present and future income purposes. Private investment is/has been manipulated by Government policy and that is why Government should keep out of private business matters.

Government debt has to be paid for by taxes and therefore this needs to be scrutinised very closely at all times. Government debt is an expense and has far reaching influences over all legislative, policy and regulatory frameworks which distorts the economy and Private investment.

If the Private sector is not investing in a particular area that is usually because of risks associated with that area. The Government doesn't apply the same risk management processes that Private investors have to, as Government doesn't have to rely on income/returns/profit for funding it relies on all types of taxation which it can manipulate at any time using legislation, policy and regulation.

Governments give themselves all the rights and priviledges to influence any area they choose and care little about the outcomes of the people who are doing the paying and who are caught out by the manipulation.

Remember everything a Government does is legal!

by ngakonui gold | 27th Feb 13, 11:07am 1361916457

Don't worry about our children and the debt.

They won't be worring about you.

They can't wait until you kick the bucket so they can sell up your assets and live happily ever after.

by xingmowang | 27th Feb 13, 10:16am 1361913387

My first son will be born in NZ very soon.

I hope he can have a happy childhood, attend university, aquire a useful skill, setup a business, employ a bunch of people, export their products, and live happily in NZ.

by Matt in Auck | 27th Feb 13, 10:24am 1361913848

I hope so too. Hopefully NZ will finally get things right by the time he grows up

by steven | 27th Feb 13, 10:24am 1361913870

[future] Congrats, my ones were born here as well 1/2 chinese btw (harbin).

regards

by xingmowang | 27th Feb 13, 10:30am 1361914217

Emmm. Nice but chilly place.

Harbin red sausages taste like heaven!

by Ms de Meanour | 27th Feb 13, 10:26am 1361914008

I share that hope and wish all of you all the best. However, it's puzzling to me how you can reconcile this hope with your earlier statement that you've had enough and don't want any more. Are you saying that you already have all the wealth that will be needed to raise your son and pay for his education and any healthcare he may need? Or is somebody else expected to pay for that?

by xingmowang | 27th Feb 13, 10:32am 1361914351

I was refering to consumptions of durable goods.

An example,one wagon is enough for my family. Why pursuing two SUVs?

by Ms de Meanour | 27th Feb 13, 2:00pm 1361926828

So wanting another car is not, for you, a reason to want to continue to work hard and earn money. However, as you have said separately, you do have other reasons to want to work hard and earn money - your son's future wellbeing. That is your choice and your right and I wish you and your family the very best of fortune with it.

However, if you want to be able to achieve this without general economic growth, then the wealth that will be required to feed, clothe and educate your son will have to come at the expense of somebody else having less wealth to spend on what they want. Do you think you have the right to expect that?

In short: economic growth is the only way in which individuals can increase their own wealth without reducing other people's.

by xingmowang | 27th Feb 13, 2:13pm 1361927607

What is economic growth? What drive it?

put it in layman's term -- more machine, more people and more productivity will drive economic growth.

Do you see anywhere says extravagant consumption would drive it?

A big reason that the world being in the current situation is ppl consume more than they earn!

Am I right here?

by Ms de Meanour | 27th Feb 13, 2:44pm 1361929480

Economic growth is the result of people like you working hard and productively so as to increase their own wealth.

And having achieved that, they can then use that wealth however they like. You do it for the sake of your son, but you would make just as much of a contribution to economic growth if you were doing it in order to buy a second car.

Your original complaint, then, is not about people wanting more cars. It's about people wanting stuff without having to pay for it by their own efforts - or more precisely, about people being able to get stuff without having to pay for it from their own efforts. I'm very happy to agree with that.

by powerdownkiwi | 27th Feb 13, 3:24pm 1361931898

Oh dear.

"And having achieved that, they can then use that wealth however they like".

no they can't.

The planet cannot supply that, always wasn't going to at some point, and the 'wealth expectation' at that point, having run leveragedly ahead of itself by an unprecedented amount, was always going to be unrealiseable.

Pay is the wrong word, as long as 'efforts' are unrelated to the real world, and what it can/cannot deliver. Although I'll give you the point if you accept that there will be rampant inflation in the bidding-war, or a massive write-down of 'capital', or mass defaults, or a mix of all three.

by Ms de Meanour | 27th Feb 13, 4:29pm 1361935747

PDK, whatever took you so long.

Of course "whatever they like" is qualified by and constrained to what is available for purchase. No matter how much wealth I have - even if it's in the form of something which you would accept as having real value - and no matter how much I'd like it, I still can't buy a tonne of Unobtainium, or a moa, or a place in the All Blacks.

Of course "efforts" are ultimately related to the real world. Certainly the price of natural resources will go up as they become scarcer and more difficult to obtain, I assume that's what you mean by "rampant inflation in the bidding war". I would describe that as the normal functioning of a market and as I've said elsewhere, I would expect some people to respond by sitting around and moaning, or in some cases gloating "told you so", and others by finding ways of responding to that challenge.

by iconoclast | 27th Feb 13, 10:46am 1361915197

MdM: precisely. the statement was either (a) an intellectually thoughtless thought bubble from an academic, or (b) from someone who has enough wealth to be able to think along those lines, but (c) is in stark contrast to those locals who live on struggle street and (d) waiting for xing to do the charitable thing and share the wealth, considering he is a new arrival.

by xingmowang | 27th Feb 13, 10:57am 1361915859

I have been living in NZ for more than 10 yrs. I may live here longer than any of you have.

Why do you make such a connection: I am from China --> I just arrive in NZ --> My wealth is enormous that I can share it with ppl who are fit to work but choose not too.

Are you a racist?

I work my way up from an international student, working long hrs, working in jobs that will not be considered by 'locals'. I studied full time during my honours year while working 35hrs a week, and still got a first class. I did my post-grade with scholarship.

Why do you talk to me with so much anit-Chinese-sentiment? Is it because they work harder than you and then live better than you?

by Andrewj | 27th Feb 13, 11:02am 1361916127

http://www.amazon.com/gp/product/1594202842/ref=s9_simh_gw_p14_d0_i1?pf…

by xingmowang | 27th Feb 13, 11:20am 1361917225

On one hand, every news is about NZ's economic growth being weak, youth unemployment being high, skill labour shortage being staggering on farm and during ChCh rebuilding, math and reading skills being poor among kids compared with other OECD countries.

On the other hand, I was mocked at for working hard or for asking my kid working hard?

by JetLiner | 27th Feb 13, 12:23pm 1361921002

One phrase: Tall poppy syndrome (http://en.wikipedia.org/wiki/Tall_poppy_syndrome). Unfortunately widespread.

Jetliner

by Ms de Meanour | 27th Feb 13, 2:03pm 1361927014

No, you're not being mocked for that, at least not by me. You're being mocked for thinking that economic growth is unnecessary and undesirable while doing everything you can to make sure that it happens.

by notaneconomist | 27th Feb 13, 12:33pm 1361921609

Iconoclast - I think you have just made a rather large error in your A to D analysis of Xing.

by Matt in Auck | 27th Feb 13, 10:22am 1361913775

2% growth will not make much dent in unemployment, in fact it will probably still rise at that rate, and that will be a real fiscal drag

NZIER are by far the best economists in the country

by Gummy Bear Hero | 27th Feb 13, 3:55pm 1361933748

Even at just 2.5 % annual GDP growth , that compounds enough to double our economy's size in just one generation ......

...... that's not too shabby methinks .....

Rock on , team !

by powerdownkiwi | 27th Feb 13, 4:12pm 1361934779

Well said, Mist.

Only fools think you can somehow double without resource depletion. And economists, of course.

Actually, there's another possibility: that they're well aware that they're peddling horseshit, and have the kind of conscience required to do so. That takes them out of the 'fool' class, but - given the impact of the consequences of their actions on themselves - not by much.

Neither genre are worthy of respect.

by Ms de Meanour | 27th Feb 13, 4:32pm 1361935963

PDK, what role exactly does technological advance have in your worldview?

by Gummy Bear Hero | 28th Feb 13, 12:05am 1361963116

Exactly right ....... American GDP has doubled over recent years , yet their consumption of oil has barely increased at all ........

...... " resources " are not required in larger quantities to grow an economy ......

by JB | 28th Feb 13, 7:17am 1361989056

MdM - you remain one of the few asking the right questions. Keep on firing - we need this level of debate. With the trade balance heading south over the cliff - I do agree we need to better define what is growth.

New prisons, fixing leaky homes and rebuilding CHCH all add to GDP - but alas I fail to see how they will generate wealth to pay off our ever increasing import bill - now at the stage where we have to borrow to pay the interest on our debts.

by JB | 28th Feb 13, 11:26am 1362003993

Singapore - No natural resources yet continues to grow and prosper.

What's wrong with NZ following the Singapore model ?

by Wolly | 28th Feb 13, 4:29am 1361978998

"Imbalanced"...or in other words...totally dependent on the credit creation drug.

The spinning top must remain spinning...the drug dose is critical...

Saving died some time ago...those who do, face having their efforts burned by endless currency debasement if they fail to earn a return above debasement plus thieving tax....most fail.

Lesson learned by survivors....property investment for capital gain and use your own capital asap...because the dolts in the Beehive pretending to govern, are into property like robbers thieving ice cream from babies and they will protect their private gold mine regardless of the farce.