By David Hargreaves and Jason Walls
Every rockstar it seems has their day.
One minute you are packing out stadiums, the next it seems you are playing to a half-full pub with an 'audience' of patrons more interested in purchasing their next pint.
And like the famous Spinal Tap from the seminal 1980s film 'This is Spinal Tap' it seems New Zealand's rockstar economy is on a path to playing support act to other countries that are now seeing stronger growth.
The 'rockstar' tag was first attached to NZ's economy by HSBC chief economist for Australia and New Zealand Paul Bloxham and it's a label that has been picked up widely.
Now this week the Westpac economists are saying that the rockstar label is fading and we're going to have to settle for a stint as support act.
In their latest Weekly Commentary the Westpac economists say the New Zealand economy will continue to underperform its peers for the next few years, and this will have important implications for both net migration and the NZ dollar.
But the politicians have climbed into the whole thing and are disputing it.
'We were only a roadie'
In a colourful exchange of views laden with music references in Parliament on Tuesday National's finance spokeswoman Amy Adams attempted to turn the debate up to volume 11 on the fading 'rock star economy'. But Finance Minister Grant Robertson refused to face the music.
No. The previous Government’s tone-deaf economic management meant the economy was never a “rock star” and was better likened to a “roadie", Robertson said.
(For the unitiated a 'roadie' is the humble individual who gets to lug the muscians' equipment around, set up the stage, take down the stage, and generally pamper the ego of the 'star'.)
In its report Westpac said that earlier in the decade, "we were an outperformer on the global stage", with GDP growth running at rates of around 3.5% to 4% p.a.
"That was well ahead of what we were seeing in other developed economies, including Australia and the US," the Westpac economists said.
GDP cools
However, the earlier drivers of growth, which included house prices and construction activity were now providing less of a boost to economic activity.
"This has already seen annual GDP growth cool to 2.9% at the end of last year. And recent updates on economic activity indicate that growth has continued to soften in the early part of 2018.
"Notably, retail spending was softer than expected in the March quarter, rising by only 0.1%.
"On top of that, construction activity fell by 0.9% in the March quarter and has essentially been flat for around three quarters now.
"Underlying this softness in construction, home building has been trending broadly sideways since mid-2016. That pre-dates any uncertainty associated with the change in Government, and highlights the brake that capacity constraints and difficulties accessing finance are having on building activity, regardless of the large pipeline of work that is planned."
'Slowest pace since 2014'
The economists said that it now looks like GDP growth in the March quarter could be around 0.5% or "even a little lower".
"That would pull annual GDP growth down to around 2.8%, which would be the slowest pace since 2014."
In Parliament Adams pointed out that GDP per capita fell to just 0.1% in the previous quarter – this is the lowest level since 2011. It was down from 0.2% in the quarter prior.
Before the election, Robertson indicated this was an area of concern for him.
“There are some good, solid indicators in there,” he told Interest.co.nz.
“But then there are other ones, like GDP per capita, which is not so good.
“The argument has never been that those high-level indicators aren’t good. The argument is, are people getting a fair share in prosperity? Are we actually making sure that we’ve got a long-term plan for sustainable prosperity? And we all know that the other numbers there that aren’t so good are productivity numbers, export growth…those are the numbers which will be most important in driving improved living standards for New Zealand.”
Singing from the songbook
But, in response to Adams in the House on Tuesday, Robertson took a page out of former Finance Minister Steven Joyce’s songbook.
“I remind that member of her former colleague's statement—Steven Joyce said it—'It pays not to look at quarter-by-quarter analysis when it comes to GDP per capita growth.’”
Although the economy is growing at roughly 3% per year, he says the Government is not satisfied with that – “we want all New Zealanders to actually share in prosperity, not just be satisfied that we're generating those levels of growth.
Meanwhile NZ First Leader and Deputy Prime Minister Winston Peters is not so pessimistic now.
On the night he announced the Government, New Zealand First Leader Winston Peters issued a rather grim prediction for the economy.
“We in NZ First believe there is an economic correction, or a slowdown is looming and that the first signs are already here,” he said referencing the slowing housing market and trading banks “nervousness.” He said there were “dark days ahead.”
But his forecasts of doom and gloom were nowhere to be seen on Tuesday when he attempted to support the Finance Minister with his own supplementary question.
“Could I ask the Minister of Finance as to whether or not, as an indicator of confidence, our share market is today at an all-time record high?” he asked.
He is right – on Tuesday the NZX 50 closed at 8959 points which is a record high for New Zealand’s equity market.
Robertson used this as an opportunity to plug how happy businesses were with last month’s Budget.
Slowdown in net migration
The Westpac economists said that softening GDP growth would be reinforced by a slowdown in net migration.
"The slowdown in GDP growth has seen New Zealand’s position on the global stage slipping from ‘rock star’ to ‘support act’, as growth in other developed economies has lifted. In particular, we’re now underperforming the Australian economy, where GDP grew by 1% in the March quarter, to be up 3.1% over the past year."
The changes in New Zealand’s relative standing in the global economy will have some important implications.
"One key area that will be affected is net migration. In recent years, our favourable economic conditions and jobs growth made New Zealand a very attractive destination.
"That saw a strong lift in new arrivals to the country. It also encouraged larger-than-usual numbers of New Zealanders to remain onshore or come back from abroad (especially from Australia). Combined, those factors saw annual net migration rise to a record high of 72,000 in mid-2017, and pushed the rate of overall population growth above 2% p.a. That provided a powerful boost to demand and our productive capacity, reinforcing the other factors that were supporting growth.
"Net migration has been softening in recent months, slowing to a still elevated level of 67,000 in the year to April.
'It will slow more'
"We expect that it will slow substantially more over the next few years, as the New Zealand economy starts to lag its peers like Australia and the US. This will exacerbate the more general softening in economic growth, with smaller additions to our demand base, as well as reducing the degree of pressure on new home building (at least outside of Auckland)."
The Westpac economist say the other area where the New Zealand economy’s underperformance will really matter is the exchange rate.
"In recent years, strong economic conditions saw the Kiwi soaring to 88 cents against the US dollar, and at one stage we flirted with parity relative to the Australian dollar.
"The NZD/USD is now back around US$0.70, and we expect it will fall to around US$0.64 cents over the coming year. Strengthening US conditions are likely to see the Fed continuing to gradually hike the Federal Funds Rate, while softening economic conditions in New Zealand will keep the RBNZ on the sideline for some time yet."
The depreciation of the NZ dollar over the coming year will provide "a buffer" for the economy, boosting export returns and cushioning the effects of slowing activity in other parts of the economy.
86 Comments
Dear me I guess its time to pay the piper..
"However, the earlier drivers of growth, which included house prices and construction activity were now providing less of a boost to economic activity.
This has already seen annual GDP growth cool to 2.9% at the end of last year. And recent updates on economic activity indicate that growth has continued to soften in the early part of 2018"
This govt accounts will be saved by the rural economy which is flying. A slowdown in construction is unbelievable considering all the jawboning about the ramping up of houses to be built. I am sure the standard response will be that it is not their fault. Higher costs for consumers - not their fault, economic collapse in taranaki - not their fault either. Rents spiralling upwards as a result of changes including installation of heat pumps - how can that be?
That's one way to try to rewrite it.
Perhaps the reality is that an economy built on housing prices and twice the OECD norm immigration rate is not built on a firm foundation. Yet when bad economic signs were pointed out to Bill English last year (or 2016?) he said "Other economic signs are very strong. We have house prices going, and immigration is strong."
So that was it? That was the foundation?
Yesterday ANZ wade into the immigration debate, today it's Westpac with a warning about our economic growth (basically both of them realise that they over-egged the lending pudding and may soon have egg on their faces).
Did John (See no Evil) and Bill (Speak no Evil) really both get Knighthoods for allowing these banksters to do this and artificially inflate GDP through an overdose of credit? Will it be an Ireland 'pop' or a 'Cyprus crash?'
Yep, it hard to spend innovation for export when the discretionary spend is being sucked out of businesses to support staff paying the stupid levels of rent and mortgage payments resulting from overseas wallets pumping house prices for free education and healthcare in NZ.
Once the ponzi of flicking houses to each other for greater levels of debt comes to a stop, what was really achieved?
Isn't it triple the norm not double? Why do NZ politicians think all other countries have a lower quota?
As an immigrant with a visible immigrant family who chose Auckland because it is full of immigrants it is fair to say I like immigration. I also like breakfast but triple helpings is too much!
The future will show whom were the real uneducated idiots. Most of you will not be talking to those that really understand just what is happening to our world's climate. However. there are sources that certainly help. Professor Jennifer Francis is a great start. https://www.youtube.com/watch?v=ymznUdTgD5Y.
Not so sure Didge.
Fiddling with numbers is easy.
Antonymouse. It is not difficult for intelligent persons to find sources that are very probably trust worthy. Too many fools have been missled by the fossil fuel industry and other vested interest climate change deniers. The fact that you quote. Tony Hiller proves you have zero idea about what you are arguing. Tony Hiller is a total joke in Academia.
(Anthropogenic) Climate change, its full name, has become a religion to you. Since it has become a religion to you, you have every right to fully believe in it.
We, as sane person, will ask questions and cast doubts on climate change because there are some many things we as human being just simply do not understand.
Xingmowang - I love the way you pretend to follow the scientific process, yet by denying climate change is most likely exacerbated by human activities you are being unscientific. It's uncomfortable for you to accept that we are killing the only atmosphere we have so you pretend it can't happen. It is you sir who causes fear, uncertainty & doubt and has blind faith it will "all just go away or something".
Presumably looking at the carbon cycle and how dumping billions of tonnes of once-buried carbon into the atmosphere in the historic blink of an eye (150 years) acts as a multiplier is simply a "religious belief"? Looking at the planet Venus gives us some clues though. I choose to be informed and do something about it.
The economy never had strong fundamentals to begin with. Name one productive industry that has been the growth driver of our economy and catered to the global market; an industry that relies on a high skilled workforce instead of thousands of cheap sets of hands and legs to underpay and exploit.
The rock star economy never equated to pay rises or better conditions for employees. We should have drained the mini bar, trashed the hotel and stolen the TV while we could. But our reserve bank was always afraid that the inflation bogey man might spoil the party so held our rates unnecessarily high. Now we are no longer famous we might struggle to have the fun we should have had.
Like Fox Mulder's poster, Kiwis want to believe.
It's why Un Zudduhs still kid themselves the whole world is watching utter non-events such as, say, the America's Cup, and it's somehow putting Un Zul'n on the map, despite the fact 99.9999% of Earth's population doesn't know or care about it.
Likewise, if you kid yourself often enough that you have a "rockstar" economy eventually you will come to believe it, because the alternative is just too damn depressing for people who want to be known and loved.
The America’s cup is a “make work” scheme for millionaire sailors. Rich white middle aged males bumbling about in boats while picking taxpayers pockets and tearing up fistfuls of money. 99.9% of the world can’t work out what the interest is in it. I’m squarely in that 99.9%
There is a fair bit of that in house envy, too. People look at a nice house and think their life would be wonderful, if only they lived in a house like that.
One of the best 2 minute videos ever:
https://www.youtube.com/watch?v=dnj83CbtFHw
No, thats about right, he was talking about the Americas cup. I very much doubt most of Africa, Asia or South America has heard about it.. ditto with most landlocked European nations, and most of the population of inland US states too.
If you were talking about NZ, you need to lop the numbers after the decimal point off.
Very few people anywhere in the U.S. have even heard of the A.C. let alone care about it. Remember, Larry Ellison had to pay people to stand on his dock and wave little flags at his boat and crew, because there was (and is) essentially zero interest in any of it, then and now. And that was in San Diego, the seething hotbed of A.C. fanaticism in America, yet the people waving the flags had absolutely no idea why they were doing so other than they were being paid to do it.
You're correct. It's actually much closer to 99.99999% who neither know nor care about Thuh 'Murricuh's Cup.
As for the immigrants thing, you must be almost anywhere on Earth, since the population of most countries is based on immigration. Of course none of them ever moved anywhere because of Thuh 'Murricuhs Cup unless it was to escape the hellish noise of Peter 'Screaming Skull' Montgomery.
Seriously though, the number of people outside NZ who give even the tiniest flying shit about Thuh Cup is somewhere around the low thousands. And that's being anything but conservative.
I think the point he is trying to make is, what we view as an mportant event and a honeypot for visitors (americas cup), is in fact a matter of profound indifference to almost the entirety of the worlds population. Seems a fair point.
II would go further and say it’s a taxpayer funded self pleasuring fest for intinerant millionaire sailors who are sponsored by middle aged zillionaires with more money than sense. But that’s only my personal view.
Zachary...well it's achieved some jolly good giggles out of me, and i'm sitting here reading out these comments to my Kiwi husband, over a glass of wine, and he too is giggling... because we have both heard the same Kiwi's saying how the America's Cup is somehow some big to-do. Cargo cult hilarity.
He used to work for a rather fancy American organisation in London, funnily enough, mostly with Americans, extremely rich Americans... in all his time there, out of all the many 100's of American's he interacted with, he heard one solitary individual mention the America's Cup. And he describes them as "some woo woo weirdo from Tucson, Arizona". And neither he nor I have ever heard a single European mention the America's Cup. In fact, the first I ever became aware that such a thing existed, was right here in NZ...where I was told by a Property Investor that it was going to boost house prices.
Oh how I LOL'd inside, while politely nodding.
I don't think that is the point. You are of course right on a global basis, but so what? Most people haven't heard of most things. What matters is, does it move the needle in selected markets?
More than 99.99999999% haven't heard of interest.co.nz, far fewer than the AC. But we can still post record traffic month after month, so to speak. Our community is growing quickly. But it is a specialised audience.
The world is full of specialised audiences. This is where the gold is. This is where the competition is less brutal. This is where you can distinguish yourself. You are not a failure if everyone in the world doesn't know about you and your company/event.
Typically, those who are ignorant of these specialised positions can be taken advantage of (in a good way, of course). It is they who provide the upside. If everyone 'knows' then there is no upside.
In essence, that is what makes New Zealand great, with great prospects.
David Chaston, nobody is commenting on the issue of how many people do or don't know about the America's Cup as a specific stand alone issue, but rather the fact so many Kiwi's seem to believe that it is some big deal on the world stage that can somehow raise the profile of NZ on the world stage. Which is patently nonsense. And whilst a tiny number individuals might make a few bucks from the America's Cup, it's not going to be a national GDP boosting figure. The amount of media coverage it gets, the amount it gets discussed vs the actual difference it will make to anything, is laughable.
The mockery above is not about specialist markets or specialist audiences but the representation of the America's Cup as something significant to NZ as a nation or to the world beyond that.
When you invest billions in something people expect you to have done your due diligence first, yet that's how much gets thrown at stuff such as Thuh 'Muriccuh's Cup and the Rugby World Cup and other things of interest only to a small minority of people, most of them in New Zealand, and the investment is made on the strength of collective hysteria and insider deals.
The Auckland Council didn't pay off the last of its 1990 Commonwealth Games debt until well into the 2000s and had to grudgingly concede it took an absolute bath on that white elephant. Now look at truly minor events like Thuh 'Murricuh's Cup. In the circus of global sporting displays it's too insignificant to be even a sideshow. It's one of the popcorn carts, probably the soy flavoured stuff almost nobody buys.
So why does the NZ government and related bodies throw so much tax money at things with no hope of throwing any back to tax payers? Because of hype, hot air, little red sock fever and the fact a few insiders are gouging a bit of that cash for themselves at the expense of everyone else.
Nobody would care if all this was funded by the specialized audience, but it isn't. The people of NZ are forced to dig deep, whether they want to or not, and the powers that be employ smoke and mirrors and empty promises of international fame and fortune in order to con them into accepting it.
But hey, they also tell us NZ has a rockstar economy, so I guess you guys can afford it. Right? Sure.
Re Malarkey and things like the RWC
The spiel says it puts us on the map with a lot of mystery "tangible benefits" but those with no skin in the game say "The economic case for hosting the Cup was weak, Professor Hazledine said."
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10…
You misquote, noone talked about skin in the game, that must be your opinion.
"The tournament will be run at a loss, and the expected deficit has grown by 30 per cent to $39 million. Two-thirds - $26 million - will be covered by taxpayers, and the NZ Rugby Union will pay for the rest".
Cargo cult
Snedden didn't have skin in the RWC,? Heres an example of these mysterious benefits that are trotted out to justify tax payer money whether its AC, RWC or just bringing Beckhams soccer team to AKL.
"Martin Snedden, chief executive of Rugby New Zealand 2011, the tournament organisers, said there were many intangible benefits in having the cup in New Zealand.
"It's not easy to measure in hard dollar terms but you can understand, if you are aware of these events, the really extensive worldwide media coverage and television coverage it gets and just how much opportunity it has on the world stage - it goes to so many different countries."
So Labour is changing the story from their pre-election forecasts of 4-5% growth over this term in response to rapidly falling growth. What an enormous surprise that is to everyone not Labour aligned. Nothing to do with govt of course. [edit re-election was meant to be pre-election]
I guess even the Labour government, like its predecessor, doesn't have a plan to generate economic growth in the face of reduced migration and normalising house prices.
Due to capacity constraints and absence of economies of scale in infrastructure development, the incremental cost of new migrants is high and most migrant working as cooks, baristas and shelf-stockers won't contribute nearly enough in taxes and economic production to make up for the costs.
That is exactly why we are struggling to secure enough funding for capacity expansion in our major cities despite the additional tax take. We are stuck to work with a low income workforce to rebuild a high cost economy.
Indeed - that and the fact we don't produce much the world wants, we're unproductive, under-educated, buy & sell houses thinking that creates "wealth", have ailing infrastructure and a health system that's about to implode because of too many oldies - all entirely predictable of course, but we thought we were awesome & that someone else would pay for it.
Yeah. There is that. And conversely what value NZ does have internationally is mostly associated with it being a safe haven with a tiny population, so irrelevant to global politics and insignificant on the world stage as to not be a likely target for bombs or terrorism.
The construction industry is cyclical,like clock work (one reason prices and labour costs increase during booms as capacity is removed during the down turns). So it should be no surprise construction is coming off the boil and will impact the economy.
Chch residential rebuild pulled the industry out early from the GFC , from a low of just 14,000 house starts, to recent volumes in the high twenties. Happened quickly due to the urgency and insurance funding otherwise we would have been slow to recover along with other housing based economies. Open the immigration flood gates and off-shore investment and wallah you have a rock star economy.
We are the champagne cork bobbing along in the deep end of a pool going from blue to green. If we had half a brain we would have been rich by now, but we don't. That's why we're poor and getting poorer. Yes, there's a few of us that have done quite well out there but the reality is that we have been breeding stupid people for nigh on 50 years at the taxpayers expense, who are now filling our jails, hospitals and streets with rather a rather base sort. If we don't stop sponsoring this madness shortly it will drown us, and those like us. If you follow the immigration story globally you will know that people follow (flow to) the free money that is welfare of the West and I'm pretty sure, given time, it will sink us.
you'll love listening to this https://www.youtube.com/watch?v=UU041nzJf-Q Yep my daughter could have been smoking meth in the state house. She's has umpteen kids and she's just had another. Could I have 15 thousand dollars please.
National’s tailwinds have turned to headwinds for Labour. The earthquakes were GDP stimulatory, whereas bovis, I would argue, is the opposite. The post 2009 reduction of mortgage interest rates by 300 basis points was GDP stimulatory, but it looks like we’re at the end of that road now, and yearly domestic credit growth is sharply down. Billions of dollars of foreign capital poured into the housing market creating long lasting wealth transfers. John Key himself benefited with about 10 million dollars of tax free capital gains from the sale of his house alone. The fact that he sold to a Chinese foreign National is ironic seeing as the National party constantly lied about the extent of foreign house buying. The evidence though is overwhelming with books and documentaries detailing the problem.
Where was the investment in long term future revenue growth? What factories were opened. What high value added high tech products did the National government invest in? Nationals term was largely predicated on tailwinds, squandered opportunities, wealth transfers, regressive taxation, differed expenses, and unsustainable growth typified by high immigration and high levels of foreign house buying.
I think the current government is actually doing quite well in a harsh economic environment. Good on them for commissioning some reports. Decisions have to be based on sound logic, and fixing the amphetamine debacle is a good start. Who knows perhaps we’ll see real value investment by the government. Perhaps we’ll see GDP replaced with quality of life indicators, home ownership rates, GINI coefficients etc. But perhaps the outlook is bleak and the cake isn’t getting any bigger, only different sized slices for different groups of society.
So growth slows once the private debt binge ends if government insists on running surpluses. Gosh, what a surprise. Who would have thought? Where does the spending to grow come from if the private sector stops borrowing, government taxes more than it spends and we run a current account deficit?
Why on earth would you want to expand a business with this mob in power? Given that small business uses the home to fund working capital dont expect growth to pick up anytime soon. I’m yet to be convinced that we will see wage price inflation either, with all these artificial constructs forced on business. Business doesn’t like being told by government what to do.
I never brought into the whole rock star economy to begin with & I wouldn't of paid any economist who believed the hype one cent either!
The National government spun some tall tales & good yarns about it plus the budget surplus much to their voters delighted ears.
But all the while they underfunded every state owned sector eg teachers, doctors, nurses, hospitals, police, winz, cyfs, Kiwi rail, NZ Post, Radio NZ, TVNZ, Air NZ Housing NZ to name a small few!
Can I claim a rock star economy & surplus exists because I don't pay my bills to cut my spending?
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