By Alex Tarrant
Subdued investment, slow growth in the working age population, and low labour productivity growth over the last few years have reduced New Zealand’s potential growth rate by to about 1.2% a year, the Reserve Bank says.
Meanwhile, the amount of spare capacity in the economy is much less than would be expected given New Zealand’s unemployment rate was still near its recessionary peak, it said.
High household and corporate debt levels, the persistently high currency and a weak global environment had restrained GDP growth over the past few years, the Bank said in its June Monetary Policy Statement.
This had restricted expenditure as households and firms moved to pay down debt and consolidate their balance sheets.
“This restraint has been most notable with major purchases, such as the undertaking of capital investment. Indeed, construction, both of residential and non-residential buildings, as well as business investment more generally, have been very weak for the past four years,” the Bank said.
“This reduced capital investment, while having an immediate negative impact on GDP, has also negatively affected the economy’s future capacity to grow,” it said.
“In addition, economic uncertainty and cautiousness in the willingness to borrow and lend has limited risk-taking, further inhibiting potential growth.”
Consistent with this, indicators of capacity usage were much tighter than would have previously been expected, given the weakness in GDP growth, the Bank said.
“Surveyed skill shortages, for instance, sit close to their historic norm despite the unemployment rate being near its recessionary peak. Consistent with the skill shortage data, wage inflation is close to its average of the past two decades,” the Reserve Bank said.
Capacity pressures
Survey measures of capacity pressures had tightened and in many cases were approaching historical averages. Notably, there were signs that pressures were building in the construction sector, particularly in Canterbury, the Reserve Bank said.
"This lift in surveyed capacity pressures has occurred despite the modest pace of economic growth over recent quarters. Following the global financial crisis, business investment spending has been subdued, and growth in the working age population has been limited. Growth in labour productivity has also been low over this period," the Bank said.
"These conditions have resulted in the economy’s potential rate of growth falling to an estimated rate of around 1.2 percent per annum. Nevertheless, it appears the economy is continuing to operate with at least some spare capacity, particularly given elevated unemployment," it said.
With the economy continuing to operate with some spare capacity, non-tradable inflation had remained contained.
"At the same time, last year’s appreciation of the New Zealand dollar and modest inflation in the world prices of imports have resulted in continued declines in the price of many tradable items. Subdued global food price inflation has also had a significant dampening effect on tradable inflationary pressures," the Reserve Bank said.
"Combined, these conditions have resulted in low rates of headline inflation, with annual CPI inflation falling to 1.6 percent in the March quarter. Annual inflation is expected to remain subdued over the coming quarters, reaching a low of 1.1 percent in the current quarter. There has also been a continued decline in inflation expectations, which are now below the levels seen prior to the increase in the rate of GST," it said.
Potential growth rate cut
In its June Monetary Policy Statement, the Reserve Bank gave a potential output rate of 1.2% for the year to March 2012, down from 1.5% in its March statement.
Potential output in the year to March 2013 was 1.4% (down from 2.1%); in the year to March 2014 it was 1.8% (down from 2.3%); and in the year to March 2015 was 2.1% (down from 2.2%).
(Updates with video of Bollard)
37 Comments
Kate, you could be right. This comment exposes a few truths.
Meanwhile, the amount of spare capacity in the economy is much less than would be expected, given New Zealand’s unemployment rate is still near its recessionary peak, it said.
When did we get out of a recession given this morning's comment:
“Given this economic outlook, inflation is expected to settle near the mid-point of the target range. It remains appropriate for monetary policy to remain stimulatory, with the OCR being held at 2.5%
Kate, in answer to your question of wonderment ... the answer is mmwaahh and my asssociates et al haw haw
Feeling very chipper today, just wearing in my new pair of Testoni's, a top of the line shoe, for those in the know.. ..haw haw
Christov, I haven't seen you in thine hallowed marble floors of the Auck's Club lately with a glass of a fine single malt in hand .. I do hope all is fine and dandy ol' boy.
GBH, I do like your musings... very entertaining, what.
You all have a most delightful, hard working day generating income for mmwahh, whilst I enjoy my estate on Kaanapali Beach on the beautiful island of Maui :)
28 today with a balmy, tropical breeze ....round of golf anyone ? haw haw
...... can we sign you up for a regular guest spot , Champers ?
No offence to the Hickster , but we're all still poverty stricken & depressed under his stewardship here @ interest.co.nz .....
..... it'd be a nice change of pace to be enlightened & amused in our poverty .....
Champers old boy..! miserabley cold and bleak here at present and the weather isn't helping any either..............boom boom haw haw.!
Yes it's been a while since I've graced the hallowed halls, enduring the dry humour of the social elite, but I ran out of peasant jokes and money at the same inconvenient moment.
i for one would add my nomination to a regular spot here by your good self if only to keep abreast of how you intend to keep that muck with money Key out of circles he clearly doesn't belong in unless as a manservant.
Anyhoo enjoy your sunny repost and be sure to don your Armani Angora longjohns prior to your return.
What else would you expect? The expectations that a mature economy can consistantly grow at 5% (say 7% nominal) are pure fantasy.That's doubling in size every fourteen years and every ten years nominally!
Course all the debt expectations and the entire monetary system are dependant on these unrealistic growth rates continuing ad infinitum. Ain't goin to happen. Sorry John.
...... ummm ... so the treasury forecasts were wrong , then ?
Wild Bill staked his budget on them ...... he was wrong too ?
...... knock me down with a feather , I thought these high paid professional guys knew what they're doing , ...
.... well , they said they did ......
Best case is zero growth...why expect more....most peasants are feeding a bank...those not doing so are stashing their cash or buying only stuff they need....those at skool are learning what sort of financial mess can result from voting in fatheads with grand ideas....
Don't forget while 'growth' has been a fat 1% plus .....the debasement of the currency has been ongoing at about 3% plus. Just the sort of thing to make you save more..... right!
when the confidence tricksters do not work, next step will be to buy a new king size mattress.
(though the ladies of the night, appear to be getting real jobs, not a rise out of their clients)
is that a tax write off, i ask myself, thinking a head.
the only only capital safety mechanism open to a real saver is a mattress, with these turkeys splurging on christmas pork...and preferential treatment of other ways, ahead of the pack, with yer hard earned ...munny.
and the rest betting on the house.
did burnhard ask bollards where he stashes his loot, or did he not have the go-nads...to ask.
a little bet each way, at the sky city seems to be JK's bet.
still we can all kick back and invest wisely with the bnz and the sky's the limit.....they cannot even look after their own clients munny, but dish it out willy nilly....it seems to those who ask, but do not actually, increditably ....actually.......................................................own..
And yes I know increditably is not a word in the dick-shun-ary.................yet.
still i think i have used up the wedding tackle analogies for one day...so the balls are in your court....burnhard.
you mean that idiot with the caps locked.
i object to that insinuation.
i have been around a lot longer as burnhard mayl attest.
but you cannot always believe what one is told. believe me.
i just do not have a digit on this welsh keyboard, so personally will not raise his ire, nor any capital that may offend his site.
burnhard banned that personna sUre-loser from ever darkening his doors, blinding him with the obvious and bringing down the tone of his illuminated, over addvertised website, that frankly blinds most other conscientious objectors.
(who too use their capital, at their discretion and get away with murdering the queen's english, tis lucky i am part welsh)
so do not talk gibberish and we will say no more about.........................IT.
my pros are spelt differently too, using the welsh version, a little less flambouyantly, but nevertheless....desireable, to some.
He didn't really ban SoreL did he,....come on now...lowering the tone..?...The tone gets no higher than misery round these parts.....bit like an Eflat.......really...
Bernard I must protest at your standing down of the resident artiste, poet ,or bard and insist upon his timely return for some thought provoking reading.
Of course you could just not respond to this and my protestation would have been nullfied.
Bernard..?....you there Bernard...?..................?
do not lament...
neigh not band, just worned off................ never to use a capslock again.
there is only a small market for scorn and miss trust in this land of the shaky deals and little interest.
but i can quite categorically state verily, some people do not have the sane cents of indignation as a sour loser, that poor poor scorned man of few words..........
see..............everything must be above a certain tone and burnhards eyes watereth verily and surly must be obeyed.
we must abide by the interests of the one, not the interests of the many.
and the interests of the many borrowers, exceeds the interests of the sure losers................... and the like.
the interests of the savings of the savers, has no interest for the expenditure of the profligate and it is the banks capitals that must be saved, not the savings of the savers who saved with the banks, the oracle has spoken, no more capitals growth for at least 10 years................but some mighty fine profits, the prophets said.
the tone has been set and he who must be obeyed has spoken...................... as has mr bollards, with forked tongue.
verily the savers will not prosper, nor the houses lament.
for such is investment of the invested leaders of our shaky isles.
for such is the is power and the glory.
hi men.
ps.
long may we treasure treasury and australian bankers, for without them where would we be...
probably not manipulated into losing our capital, rated to death and taxed verily....
ay men..
maybe it is catching.......if ya join the dots.
pps.......what do you call a shon-key business that manipulates markets to favour certain parties.....unduly...............and who are not working, but cooking the books.
a scam.............
so keep taking an interest, not much, otherwise burnhard may make a prophet......yet.
http://www.energybulletin.net/stories/2012-06-14/parting-ways
"Still, a series of news items over the last week or so have me worried. No, it’s not the latest news about methane plumes in the Arctic Ocean; it’s not the current round of economic idiocy from Europe, where the bizarre conviction that banks ought to be sheltered from the consequences of even their most clueless investment decisions has become the centerpiece of an economic nonpolicy that will likely tip the entire EU into mass bankruptcy; it’s not the death struggle between two failed ideologies that’s frozen Washington DC into utter political paralysis at a time when avoiding hard questions any longer may well put the survival of the nation at risk. No, quite the contrary: it’s the rising chorus of voices, from all across the political and cultural spectrum, insisting that everything really is all right and that any suggestion to the contrary ought to be shouted down as quickly as possible".
He must mean DB, GBF and Co.
If Bollard had a clue about what he was doing he would understand that more than ever he needs to increase interest rates and put a break on malinvestments along with Government spending before it too late. http://j.mp/L32BnJ
The unrepentant heratic of course PDK......now let me get this straight...If i don't say I'm in love with the Devil and all his minions I will be burned at he stake.
However if I do say I'm in love with the Devil and all his minions ..I'll be castrated,sodomised with a bullhorn, and burned at the stake...
Ummmmm..I ...er...
Hang on here a tick, Count.
The fellow had a Seat, and when asked the question, said "Torque? Nada". The name stuck.
Actually, they garotted you, should you repent (or repant, given the lack of oxygen).
Best place to weather what is coming may well be Chch, where they don't allow wood-fires.
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.