Tuesday, 28 November 2017

Q: What kind of rock star economy is this?


New Zealand is still said to be a rockstar economy. If so, what kind of rockstar economy is it?

The list of top-most profitable non-financials in the US, observes Michael Reddell, features (relative) newcomers like Apple and Google "and ... almost all the companies have a strong international focus."

By contrast, of New Zealand's top 10 money-earning companies,
we have four majority state-owned companies (one a natural monopoly), a chain of petrol stations, a property-boom play, and a co-op whose profits are largely driven by swings in global commodity prices. There [isn’t] much new or very dynamic about it. In a way, the list of top 10 money-losing companies looks more interesting – in addition to Tasman Steel (No 1) and Kiwirail (No 2), it does feature Xero and Orion Health.
If that's a rockstar, then it's in some kind of dinner-music soft-rock genre.

So what about recent governments' "policy focus on increasing the outward orientation of the New Zealand economy" -- how has that gone? Answer: it's hardly rocking out. Michael Reddell again:
As a share of GDP, imports haven’t been lower since the depths of the recession in the year to March 1992. Exports haven’t been lower, as a share of GDP, since the year to March 1976 – more than 40 years ago. There was, so it was claimed, a policy focus on increasing the outward orientation of the New Zealand economy. If so, it failed.
Hmmm. so perhaps it's a rockstar in good old-fashioned savings and capital investment/accumulation then -- those good things that expand productivity and generally raise wages. Turns out that here too things are ropy:
Business investment as a share of GDP (i.e., total gross fixed capital formation less government and residential investment) ... picked up a couple of years ago from recession-era lows, but has gone sideways since, and is nowhere the rates reached in the previous expansion.
Those highs were way back in 1976, and 1986. And the recent rate of capital investment hasn't been this low since the depths of the early-nineties recession.

Overwhelmingly, capital in NZ isn't being re-invested; it's being consumed.

So what kind of rock star is this then? Answer, probably: It's one where we think we're getting wealthier because of high borrowing, historically low interest rates, and the so-called "wealth effect" of selling each other houses -- and because of all of those things, we're busy consuming what we don't even realise is capital.

Which looks less like a soft rock economy than it does some kind of death metal.


[Chart: NZ Herald]

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