Briefing Notes for the Launch in Canberra, March 2008
New Zealand’s economic performance
- New Zealand’s economy continued almost a decade long expansion with growth accelerating from 1.8% in 2006 to 3.1% in 2007.
- Household consumption is showing signs of slow down despite wage growth. Due to a cooling in the housing market, it is increasingly difficult for households to balance expenditure with rising debt service cost. Household debt has risen with rising interest rate and stood at 160% of disposable income in 2007.
- Labour market remained tight. Unemployment rate recorded historical low of 3.5% in 2007. Business sector found it more difficult to find both skilled and unskilled labour. However, strong demand for labour was associated with increase in part-time workers, rather than full-time employment.
- Inflation concerns led to the official cash rate being gradually raised since 2004. The Reserve Bank of New Zealand tightened its monetary policy 4 times in 2007. Official cash rate has been kept at 8.25% since July 2007.
- Consumer price index fell in 2007 but was seen as a temporary effect of changes in government policy. Consumer price index has risen by 3.2% over the year to December 2007.
- Tight labour market, capacity constraints, and high prices for inputs such as oil and dairy products, all indicated upward pressure to the output prices.
- The trade deficit narrowed as export growth exceeded import growth.
- Strong export growth reflected robust external demand. Dairy product price increase contributed to the export volume growth. Commodity price increase was partly offset by the strong New Zealand dollar.
- Demand for imported capital goods was modest. Higher exchange rate somewhat muted the import growth.
- Current account deficit stood at 8.3% of GDP in the year to September 2007, reflecting a large deficit in investment income and transfers balance.
- Economic growth is expected to continue but at slower pace than 2007 – estimated at 2.3% in 2008 and 2.7% in 2009 . Private consumption is expected to support overall economic growth, supported by disposable income growth and wage and employment growth.
Unequal benefits of growth – agriculture left behind
- China’s land productivity has increased 87-fold since 1961, partly due to land reforms, mechanization and higher input use. Its fertilizer use is on a par with Japan and New Zealand.
- Potential benefit from a settlement of the Doha Round of global trade talks is significant. ESCAP estimates of the aggregate welfare effects under Doha show modest annual gains of $4.6 billion globally in the short run, increasing to $5.2 billion in the long. Two-thirds of the total gains would accrue to Asia. Under Doha reforms, New Zealand is estimated to gain $390 million in the short term and $324 million in the long term.
- Under comprehensive agricultural trade reforms, both regional and global welfare gains increase several times. Global welfare gains exceed $23 billion in the short run, increasing to $37 billion in the long run. Developed economies in Asia and the Pacific as a group – Japan, Australia and New Zealand – gain the most under Doha and comprehensive reforms. Under comprehensive reforms, short-term gain for New Zealand is estimated at $529 million, long term gain $506 million, which is equivalent to 1% of GDP.