NZ growth target almost impossible - BNZ

By NZPA

Monday 18th November 2002

New Zealand has "practically no chance" of achieving 4 percent growth a year in the coming decade, says Bank of New Zealand chief economist Tony Alexander.

"The best we should hope for is staying roughly where we are in the Organisation for Economic Cooperation and Development (OECD) income per capita rankings," he said in a report out today.

The Government aims to lift New Zealand's 21st place ranking back to the top half of the 30-member OECD, with the first step of raising the growth rate to 4 percent a year within the next five years.

In 1950, New Zealand was third on the OECD ladder of income per capita, but now it is in 21st place -- between Spain and Portugal -- in the OECD club of the world's richest countries.

Mr Alexander said one of the main factors holding back potential growth was the growing shortage of skilled workers in New Zealand.

In the past decade, companies had expanded by hiring more people. Unemployment was slashed from 11 percent 10 years ago to 5.4 percent now, as a result.

The New Zealand unemployment rate was less than the OECD average of almost 7 percent and less than Australia's 6 percent.

The abundant supply of skilled labour had now been used up, he said. If businesses wanted to grow they had to expand their capital base and boost productivity.

The skills shortage could get worse as such shortages developed overseas and New Zealanders were attracted overseas. However, businesses appeared to be cutting back on capital spending for fear of a fresh world downturn.

The latest international survey of economists around the world found that New Zealand's top 14 trading partners should grow by 3 percent next year.

This had been revised down twice since July, when the forecast was for growth of 3.6 percent.

The BNZ warned of some possible further downward revisions to overseas growth rates because of the Australia's worsening drought, continued uncertainty about a United States war with Iraq and worsening government finances in Europe.

New Zealand's main trading partner, Australia, was expected to grow 3.3 percent next year, down from 3.8 percent expected in July. Its second biggest market, the United States, should grow 2.7 percent, down from 3.6 percent expected in July.

Forecasts of foreign growth had been cut since July because of:

* The 12 percent fall in the US sharemarket since June;

* Faltering US consumption growth;

* US manufacturing heading back into recession, with business unwilling to invest;

* Concerns about a war in Iraq and potential interruptions to oil supplies;

* A worsening drought in Australia.

New Zealand farmers would be hit by dimming export prospects, with the prospect of low commodity prices.

Overall, economic growth in New Zealand could slow unless export returns improved by late next year when the domestic economy could have run out of steam.

But the BNZ also said interest rates could go lower if growth weakened.

Migration numbers, a strong driver of recent economic growth, could hold up if overseas economies slowed down.

New Zealand had no appropriate migration policy, and the issue remained "clouded in racist comments".

Comments from our readers

No comments yet