Economic Prospects

A very good piece in Transtasman on our economic prospects:

NZ Is On The Cusp Of Something Special.

We are being presented with a golden opportunity to move back up the OECD ladder. That’s what ANZ Bank economists think. They say the stars are in alignment: burgeoning demand for soft commodities, notably dairy products, and higher terms of trade, are providing a major windfall boost for the economy. But the gains could be eaten away by inflation pressures, and a poor productivity performance. If productivity growth over the past 5 years had been a meagre 0.2 percentage points higher, core inflation pressure would be at least 0.5% lower, and interest rates the same. The NZ dollar would have a 6 as opposed to a 7 in front of it. During the 1990s productivity growth averaged an impressive 2.5% a year. Since 2001, the average has declined to 1.1%.

They’re not sexy, but low inflation and productivity growth do matter a lot. As the article says, we have the opportunity to really start lifting NZ’s living standards, but we are in danger of missing the train. Transtasman goes on to say:

Govt’s back office expansion is not only crowding out the private sector but
driving wages up. With the business sector accounting for around two-thirds of the economy,
and productivity growth slipping by around 1.4 percentage points, NZ needs the equivalent of
a terms of trade boost of around 6% a year merely to match economic performance over the
1990s. And even more if we are to start climbing the OECD ladder.