Population ponzi eats NZ economy

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By Leith van Onselen

Statistics New Zealand yesterday released national accounts figures for the June quarter of 2016, with Gross domestic product (GDP) rising by 0.9% over the quarter to be up 3.6% year-on-year. The result followed a 0.9% rise in both the December 2015 and March 2016 quarters:

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The June quarter increase in GDP was driven by growth in construction, with the main industry movements being:

  • construction was up 5.0 percent, and all construction sub-industries increased
  • rental, hiring, and real estate services was up 1.3 percent, due to real estate services
  • retail trade and accommodation was up 1.9 percent, due to food and beverage services; and furniture, electrical, and hardware retailing
  • health care and residential care was up 1.3 percent, due to increases in private health care
  • manufacturing was up 0.8 percent, due to non-metallic mineral product manufacturing; furniture and other manufacturing; and food, beverage, and tobacco product manufacturing
  • agriculture was up 1.8 percent, due to increased dairy production.
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The main movements in the expenditure measure of GDP in the June quarter were:

  • exports of goods and services was up 4.0 percent, and imports of goods and services was up 2.6 percent
  • household consumption expenditure was up 1.9 percent, due to expenditure on services and durable goods
  • investment in fixed assets was up 3.1 percent, due to residential building; transport equipment; and plant, machinery, and equipment
  • inventories were run-down $390 million, due to decreases in manufacturing inventories.
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Real gross national disposable income (RGNDI) – which measures the real purchasing power of New Zealand’s disposable income – rose by 0.4% over the quarter to be up by just 2.6% over the year:

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Statistics New Zealand points out that New Zealand’s economy is growing faster than most of its trading partners:

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However, it should be noted that New Zealand’s strong population is growth is among the fastest in the world at 2.1%, owing to the nation’s high immigration program:

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Thus, RGNDI per capita actually fell by 0.1% over the June 2016 quarter and was up by just 0.5% over the year to June 2016:

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Real per capita GDP growth has also been weak:

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Thus, actual living standards are barely increasing, with New Zealand’s population ponzi painting over the cracks in the economy.

Effectively, the influx of migrants is growing the economic pie (more inputs equals more outputs), but everyone’s share of the pie is being diminished.

The below quote from a NZ Herald reader nicely encapsulates the broader issues:

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“The Government’s national infrastructure unit recently reported that over the next 30 years our country will face some real challenges with ageing networks. Over the next 10 years, its report estimates around $110 billion will need to be spent on infrastructure…

By deferring the spending on infrastructure and essentially pushing the responsibility onto councils, [PM John Key] is doing to New Zealand what decades of mayor around Auckland did there: allow infrastructure to fall seriously behind population growth.

One day, when we have rolling power outages, drinking water problems, clogged roads, insufficient housing, schools bursting at the seams, crime rising and the health system needing the see the doctor, money will need to be spent in quantities that nobody has been putting aside for it.

They will look back on this political generation as the ones that kept on putting on the pressure through immigration but it never actually increased our capacity to cope. Deferred spending is the next government’s problem after all”.

We have the same issues at play in Australia.

[email protected]

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.