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Economy 2018

Written By: - Date published: 8:00 am, December 9th, 2017 - 31 comments
Categories: business, capitalism, climate change, debt / deficit, economy, Economy, employment, energy, exports, Financial markets, Free Trade - Tags:

Politics and economies

It’s interesting in 2017 how little effect political destabilisation in Spain, Australia, Germany, and the United States has had on any of their economies. It seems that in many parts of the developed world, we may well continue to see political fragmentation, polarisation, and a gradual fracturing of the global world rule-based system (outside of notable trade exceptions). And yet the share markets are going gangbusters, inflation is nowhere in sight, unemployment in the E.U. and many other blocs is trending down, global poverty continues downwards if not fast enough, and markets and economies largely continue to shrug off political disorder. On that basis, the risk of a substantial short-term setback seems relatively small.

The big exception is the United Kingdom, with its messy and expensive Brexit process. This is likely to continue to weaken business confidence to invest in Britain, and may well weaken London’s core financial services industry as it relocates elsewhere.

The strongest example against economic performance diverging from political management is, of course, China. Chinese President Xi Jinping is in a stronger position than ever, suggesting that effective management of imbalances and more consumption- and innovation-driven growth can be expected.

India also appears set to sustain its growth and reform momentum.

The growth of these economies will continue to pull up others in the region including New Zealand.


A serious challenge looming in the global background is a mountain of debt that makes markets nervous – and that thus increases the system’s vulnerability to destabilizing shocks. Yet the baseline scenario seems to be one of continuity, with no obvious convulsions on the horizon (at some point I will do a review of “Debt: The First 5,000 Years”, which is teaching me a lot).

China is certainly facing up to debt.

But the United States isn’t.

One potential shock that has received much attention relates to monetary tightening. In view of improving economic performance in the developed world, a gradual reversal of aggressively accommodative monetary policy does not appear likely to be a major drag or shock to asset values. Perhaps the long-awaited upward convergence of economic fundamentals to validate market valuations is within reach.

Debt from private mortgages is one massive short term economic risk that New Zealand and Australia faces.

This is why the Reserve Bank regularly tests how much stress ‘our’ banks can take during economic downturns.

Auckland, Sydney and Melbourne property prices may lower, but there’s no current sign of a spike in mortgagee sales that might stress banks. Real estate and drought that decreases dairy production remain New Zealand’s two highest risks, as they were in 2009 immediately after the GFC.

Our fresh Labour-led government is both continuing active cooling of the housing market, and also planning a lot more public borrowing, so some are predicting a shorter term downturn with longer term economic growth.

Cash and Payments

When it comes to technology, especially digital technology, China and the United States seem set to disrupt for years to come. Smaller countries that concentrate research and development on areas such as payment platforms will be well positioned. Such platforms are not just lucrative on their own; they also produce a host of related opportunities for new business models operating in and around them, in, say, advertising, logistics, and finance. Given this, economies that lack such platforms, such as the E.U., are at a disadvantage. Even Latin America has a major innovative domestic e-commerce player and a digital payments system.

In mobile online payments systems, China is in the lead. With much of the country’s population having shifted directly from cash to mobile online payments – skipping cheques, cash, and credit cards – China’s payments systems are robust. We are within a sustained consumer-led revolution in payments.

In November’s Singles’ Day, an annual festival of youth-oriented consumption that has become the single largest shopping event in the world, China’s leading online payment platform, Alipay, processed up to 256,000 payments per second, using a robust cloud computing architecture. China is about to overtake the U.S. in consumer spending.

Inclusion and Exclusion

In the coming years, developed and developing economies will also have to work hard to shift toward more inclusive growth patterns. Here, I anticipate that national governments may take a back seat to businesses, state and local and city governments, (remaining) labour unions, and educational and non-profit institutions in driving progress, especially in places hit by political fragmentation and a backlash against the political establishment. Outside of China, Singapore, or South Korea, I see greater likelihood of business leadership from groups like our Sustainable Business Council than central government.

New Zealand has been well positioned by pivoting its economy towards China, South Korea, India, Japan, and Vietnam, while retaining strong trade links into Europe.

Such fragmentation of the centre is likely to intensify. Automation is set to sustain, and even accelerate, change on the demand side of labour markets, in areas ranging from manufacturing and logistics to medicine and law, while supply-side responses will be much slower. As a result, even if workers gain stronger support during structural transitions (e.g. income support like Working for Families, and retraining options with free study), labour market mismatches are likely to grow, sharpening inequality and contributing to further political and social polarization.


Nonetheless, there are reasons to be cautiously optimistic. For starters, there remains a broad consensus across the developed and emerging economies on the desirability of maintaining a relatively open global economy, as in the upcoming signing of the RPTPP.

The notable exception is the U.S., though it is unclear at this point whether President Donald Trump’s administration actually intends to retreat from international cooperation. What does seem clear, at least for now, is that the U.S. cannot be counted on to serve as a principal sponsor and architect of the evolving rules-based global system for fairly managing interdependence.

The biggest test of economic openness is global labour mobility. The long and massive humanitarian chaos from U.S.-led wars has led to global displacement not seen since World War II. The continued test of global labour mobility is whether it only continues to favour a priviliged and skilled few. In New Zealand, the forecast is pretty good, but even a decade after the GFC the forecast for wage growth for most workers is still low.

Climate Change

The situation is similar with regard to mitigating climate change. The U.S. is now the only country that is not committed to the Paris climate agreement, which has held despite the Trump administration’s withdrawal. Even within the U.S., cities, states, and businesses, as well as a host of civil-society organizations, have signaled a credible commitment to fulfilling America’s climate obligations, with or without the federal government.

Still, it’s perfectly rational to be deeply pessimistic about the impact of the world’s damaged ecology taken as a whole, as so much of the global economy remains highly dependent on coal and oil. The Financial Times reports that peak demand for coal in India will come in about ten years.

Australia shows how hard it is to stop coal production, where Germany shows that it’s possible.

Global coal use is flattening, and renewables are quickly accelerating.

Even with upside potential in this scenario, the world is still years away from negative growth in carbon dioxide emissions.


While some classes like private housing still appear as a bubble pumped up by artificial and unsustainable monetary stimulus, other parts of our economy and much of the developed world are maturing into an expansion of economic activity, profits, and employment that probably have many years to come.

No inflation arising anywhere, increased global financial stability, headline unemployment heading for 3.5% here, and Europe, Japan, China, India and emerging markets in a sweet spot of rising profits and low interest rates. Good news for little old New Zealand.

Also, New Zealand’s government has been confirmed as having between $1.4b and $2.1b to spend. The Minister of Finance will set the direction for this next week. That’s some serious supply-side Santa for 2018.


All of this suggests that the global economy will confront serious challenges in the months and years ahead. Looming in the background is a mountain of debt that makes markets nervous and increases the system’s vulnerability to destabilizing shocks. With New Zealand basing much of its consistently narrow export economy on uninterrupted and free water for agriculture and horticulture, it is exacerbating its economic risks in the medium term.

Yet the baseline scenario for 2018 seems to be one of continuity. New Zealand is situated within an economic power and influence shift from west to east, without any sudden change in its patterns of job, income, political, and social polarization, and with no obvious convulsions on the 2018 horizon. Not too hot, not too cold.

31 comments on “Economy 2018”

  1. Bill 1


    Tip – Gather up sticks, play jackstraws and don’t hang the man.

    Personal – Feelings of uncertainty will be overcome by a proper application of industriousness this month. Money worries should ease and a new relationship may be just around the corner. Beware close friends don’t steal your fire. Your conviviality and general sense of warmth will see you through any rough patch.

    Prospects – Turn the heating up to full and open the windows. You have money to burn this Christmas. Drink water. Things are looking goodbad… good.

    • Hanswurst 1.1

      +1. Sums my reaction up perfectly.

      • David Mac 1.1.1

        One man’s horoscope is another man’s roadmap.

        I think I stand to gain more from considering what Ad has to say about our economy than reading page 23 of New Idea.

        The subject generally bores me but I do enjoy considering what has happened in the past and how it relates to what we can expect in the future. Unlike astrology, it would be silly to think there wasn’t a link between the two.

        • greywarshark

          Does knowing about the New Idea page mean that you read the horoscope then? Quelle horreur? But then again why should that be worse than looking at chicken entrails or forensically looking at potential thumbprints on accidentally revealed field reports on significant shows at rare mineral search fields?

          • David Mac

            Ha! I guessed what page the Horoscope appears on. I wondered if there might be people that thought ‘C’mon Mac, the New Idea Horoscope is on page ?’ and bit their tongues.

            I think we all suck up degrees of pulpy trashy culture, it just needs to be a flavour we enjoy. I watch far too many people pretending to rummage through rubbish in other peoples’ barns.

    • Siobhan 1.2

      Ha! Indeed

  2. garibaldi 2

    Not too hot, not too cold. Yet it is hardly just right as in the fairy tale ! Quite the opposite,

  3. David Mac 3

    I think you’ve written a quality piece Ad. A handy window into our domestic and the world’s $ spin.

    I feel we’ve got some way to go until our money behavior matches the lifestyles we aspire to. Interesting that Chinese consumer spending is about to overtake that of the US. It’s a rise in fortunes that goes hand in hand with not being able to see each other through the pollution when kicking a soccer ball to your pal in the park.

    Anytime I think life’s a bit crook in NZ a U-Tube stroll through Homs soon changes my tune.

  4. cleangreen 4

    Time will tell if this rosy picture a just another water painting left out in the summer time but come a wet winter the water-painting will wash away?

  5. ianmac 5

    Great piece Ad.
    I wonder how AI will affect the balance of the workforce and flow on to the economy. It seems that the workforce will drastically diminish. Therefore how will those unemployed be able to live. What will we do with thousands of spare accountants?

    • Ad 5.1

      We used to think of automation as robots. Terminator etc.

      Now, it’s just deep algorithms, replacing whole classes of industry.

      If I get time before Christmas I’ll do a post on it.

    • David Mac 5.2

      We can get on with what matters: People and the planet.

      The jobs that are going are by and large repetitious satisfaction sink-holes. Yes, we’re asking train ticket collectors to step down. But sheesh, after a mere 5000 times I’d be well fed up with saying ‘Tickets Please’. The happy smiling faces would be cool but there will be a few every day that respond to a request for a ticket with something hurtful to say, problematic dickheads.

      Nobody’s career legacy should be the number of times they said ‘Good Morning’ or the number of holes they clicked in bits of paper. We deserve better.

      We depend heavily on Pacifica people for help with our elderly. That doesn’t need to change, but rather than cleaning floors, showering people and peeling potatoes I think it would be great if machines could take care of those roles and our Pacifica friends take on more of a companion role. Playing ukuleles instead of dancing with mops.

    • greywarshark 5.3

      Question: What about the workers? What about the non-workers and pensioners? What about the majority of the world? Who accounts for these when there is no employment for accountants? What is it all for? Some huge madness, some inflated ego to the nth degree?

  6. Siobhan 6

    “It’s interesting in 2017 how little effect political destabilisation in Spain, Australia, Germany, and the United States has had on any of their economies”..unless, of course you factor in the Economy that actual people live in…not just investors and Corporations and Government books thanks to Austerity policies.

    Focusing on Australia

    “According to the Australian Bureau of Statistics, average household debt has almost doubled in the last 12 years”

    (In Australia)Using ‘Part Time’ meaning less then 35 hours per week, those workers classified as part-time, contract or casual swell to over 30% of the entire employed workforce, well above the 10% levels seen in the early 1970s. Especially in lower paid jobs, so its not like a work life balance choice.

    I won’t go on, but just to mention… “UK joins Spain at bottom of EU wage growth league
    A sharp rise in inflation cancels out any gain in pay rises for UK workers”

    I know you do tip the hat to these issues, but these small gems are the ACTUAL economy…and its grim.

    • Ad 6.1

      The sentence started with current “…political destabilization..” and any relationship to economies.

      If I had wanted to discuss austerity, I would have, and it would have taken us to about 10 years ago and to reactions to the GFC. Instead I focussed solely on the year gone and the year ahead. You can check the citations.

  7. greywarshark 7

    Here is Chris Trotter bringing a jaundiced eye onto our present sidduashun.

    • Ad 7.1

      Trotter is right that National has left behind a massive set of social deficits, as outlined in the BIMs.

      But Trotter should have reflected that the electorate showed during the election that they were simply unwilling to have a major adjustment to the tax burden and essentially re-form the state to pre-1984.

      He’s never given up on that, and he should.

      He also weakens his argument with no inclusion on the positive points within New Zealand currently. There’s a lot of them. You don’t have to do Ardern’s “relentless positivity”, but without something like it Labour will never gain power, and will never sustain it.

      • greywarshark 7.1.1

        Yes good points. Don’t want to be complacent, don’t want to talk down, have to keep looking to find where change is being stifled in favour of austerity.

      • RedBaronCV 7.1.2

        yep National definitely looted the country and handed the proceeds over to the high income earners leaving behind a raft of unfunded issues. The leaky buildings fiasco of the 90’s Nact government is small change compared to the sums we are going to have to find to fix our infrastructure issues caused by excessive immigration & neglect. Change our governance arrangements so there can’t be huge sales of the people’s assets to benefit the few.

        No appetite for taxes? I think there would be plenty of appetite for a high rate of income tax on over say $200,000 to $300,000, resource taxes where our resources are being used to enrich non citizens, taxing non citizens for their use of our country, taxing massive monopoly profits flowing offshore

        • Ad

          Let’s see what the Tax Working Group comes up with.

          The terms of reference for that group pretty much rule out anything really substantial from the get-go, but they are pretty keen to effectively raise GST as a consumption tex by raising fuel tax in Auckland: the price of freight and all goods using plastic and all other petroleum derivatives made in Auckland go up massively.

          • RedBaronCV

            I can see the straight jacket that the “no new taxes and borrowing” have put on the new government but that doesn’t leave many other choices and I’d say that the capacity of a large chunk of the population ( where wage rates are static) to absorb new charges is pretty limited.

            But taxing external players,high incomes & large wealth agglomerations isn’t going to bother too many of the current governments voters.

            • RedBaronCV

              And call it a levy and put on for a few years then make it permanent. Tag it as offsetting Nacts “looting”. I like that word.

              • Ad

                Aye well, that really would require a properly socialist government.

                Maybe a John A. Lee government.

                • RedBaronCV

                  The Piggy Muldoon Government had a top rate of some 60% IIRC . Hardly socialist. And there are some macro studies in the US that redistributive taxes ( equalizing incomes) have touched off ‘long periods of growth” trying to avoid the “growth” word but actually innovation.

                  i think we’d do better channeling Jeeza rather than Tony Blair but suspect we have too many 3rd wayers in the current labour givernment.

          • greywarshark

            Does the Tax Working Group have a direction to look at relieving the tax burdens on beneficiaries’ earnings, and secondary tax, and loss of assistance grants $ for $ meaning? At present it is hard for poor people to get out of the poverty pit, as the rungs on the ladder sink down as they try to climb up.

            It could be good to have an understood policy of seeking infrastructure investment from the wealthy as an offset to having higher taxes introduced.
            Raising money within the country would lessen the flow of interest outside the country, but paid in our own currency, strengthening our own economy and probably with a multiplier effect.

            • Ad

              I sure hope so.

              I’m trying to be positive about that group even though they’ve ruled out so much.

              It was particularly striking to see the Children’s Commissioner come out on Friday stating that the best thing to alleviate child poverty was to index benefits the same way as NZSuper is.

              I think you are dead right about infrastructure investment from the wealthy. The Minister of Transport is very keen on specific infrastructure bonds, as an alternative to rates. Personally I would look at investing that kind of thing myself, and I would want NZSuperFund and my Kiwisaver to do so as well.

              • greywarshark

                Thanks Ad – it will be interesting and heartening to hear about ‘concrete’ thinking likely to lead to definite decisions and the built environment either of buildings or stalwart action-oriented policies and legislation.

  8. One Two 8

    Good on you for having a go, Ad

    Too much to disagree with however, and not enough time or inclination to go into it

    Thanks for the effort though..

    That’s a genuine comment, which also applies to all who post articles to read

  9. Pat 9

    tis a house of cards with all the worlds bankers desperately preventing any vibration or breeze….we know they are unable to do so forever so then the question becomes how long?……another 12 months?…..i wouldn’t bet anything important on them being able to.

    ….and then theres CC

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    Taita College in the Hutt Valley will be redeveloped to upgrade its ageing classrooms and leaky roofs, Education Minister Chris Hipkins announced today. “The work is long overdue and will make a lasting difference to the school for generations to come,” Chris Hipkins said. “Too many of our schools are ...
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    5 days ago
  • Redeployment for workers in hard-hit regions
    The Government is allocating $36.72 million to projects in regions hard hit economically by COVID-19 to keep people working, Economic Development Minister Phil Twyford and Regional Economic Development Minister Shane Jones announced today. Projects in Hawke’s Bay, Northland, Rotorua and Queenstown will be funded from the Government’s $100 million worker ...
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    5 days ago
  • $35m to build financial resilience for New Zealanders
    A $35m boost to financial capability service providers funded by MSD will help New Zealanders manage their money better both day to day and through periods of financial difficulty, announced Social Development Minister Carmel Sepuloni. “It’s always been our position to increase support to key groups experiencing or at risk ...
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    6 days ago
  • New District Court Judge appointed
    Dunedin barrister Melinda Broek has been appointed as a District Court Judge with Family Court jurisdiction to be based in Rotorua, Attorney-General David Parker announced today. Ms Broek has iwi affiliations to Ngai Tai. She commenced her employment in 1996 with Scholefield Cockroft Lloyd in Invercargill specialising in family and ...
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    6 days ago
  • $206 million investment in upgrades at Ohakea Air Force Base
    The Coalition Government has approved a business case for $206 million in upgrades to critical infrastructure at Royal New Zealand Air Force Base Ohakea, with the first phase starting later this year, Defence Minister Ron Mark announced today. The investment will be made in three phases over five years, and ...
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    6 days ago
  • Review of CAA organisational culture released
    Transport Minister Phil Twyford today released the Ministry of Transport’s review of the organisational culture at the Civil Aviation Authority. Phil Twyford says all employees are entitled to a safe work environment. “I commissioned this independent review due to the concerns I had about the culture within the CAA, and ...
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    6 days ago
  • New Board appointed at Stats NZ
    Ensuring that Stats NZ’s direction and strategy best supports government policy decisions will be a key focus for a new Governance Advisory Board announced today by the Minister for Statistics, James Shaw. The new Governance Advisory Board will provide strategic advice to Stats NZ to ensure it is meeting New ...
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    6 days ago
  • New Principal Environment Judge
    Environment Judge David Kirkpatrick of Auckland has been appointed as the Principal Environment Judge, Attorney-General David Parker announced today.  Judge Kirkpatrick was appointed an Environment Judge in February 2014. From December 2013 to July 2016 he was Chair of the Auckland Unitary Plan Independent Hearings Panel. Prior to appointment he ...
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    7 days ago
  • Digital connectivity boost for urban marae
    A programme to connect marae around the country to the internet has received $1.4 million to expand to include urban marae in Auckland, Wellington and Christchurch, Broadcasting, Communications and Digital Media Minister Kris Faafoi and Regional Economic Development Minister Shane Jones announced today. The funding for the Marae Connectivity Programme ...
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    1 week ago
  • Govt increases assistance to drought-stricken Hawke’s Bay farmers
    The Government will provide $500,000 to the Hawke’s Bay Mayoral Drought Relief Fund to help farmers facing one of the worst droughts in living memory, says Agriculture Minister Damien O’Connor. “Yesterday afternoon I received a letter from Hawke's Bay's five local Government leaders asking me to contribute to the Fund. ...
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    1 week ago
  • Investment in New Zealand’s history
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    1 week ago
  • Driving prompt payments to small businesses
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    1 week ago
  • Rotorua tourist icon to be safeguarded
    Maori Arts and Crafts will continue to underpin the heart of the tourism sector says Minister for Maori Development Nanaia Mahuta.  “That’s why we are making a core investment of $7.6 million to Te Puia New Zealand Māori Arts and Crafts Institute, over two years, as part of the Government’s ...
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    1 week ago
  • $14.7m for jobs training and education
    The Government is funding more pathways to jobs through training and education programmes in regional New Zealand to support the provinces’ recovery from the economic impacts of COVID-19, Regional Economic Development Minister Shane Jones and Employment Minister Willie Jackson have announced. “New Zealand’s economic recovery will be largely driven by ...
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    1 week ago
  • Is it time to further recognise those who serve in our military?
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    1 week ago
  • Paving the way for a fully qualified early learning workforce
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    1 week ago
  • Sport Recovery Package announced
    The Sport and Recreation sector will receive a multi-million dollar boost as part of the COVID-19 response funded at Budget 2020.  Grant Robertson says the Sport and Recreation Sector contributes about $5 billion a year to New Zealand’s GDP and employs more than 53,000 people. “Sport plays a significant role ...
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    1 week ago
  • Major boost in support for caregivers and children
    A major increase in funding and availability of support will improve the incomes and reduce the pressure on 14,000 caregivers looking after more than 22,000 children. Children’s Minister Tracey Martin says that caregivers – all those looking after someone else’s children both in and outside the state care system – ...
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    1 week ago
  • Great Walks recovery on track for summer
    Vital conservation and visitor infrastructure destroyed by a severe flood event in Fiordland earlier this year is being rebuilt through a $13.7 million Budget 2020 investment, announced Minister of Conservation Eugenie Sage.   “This investment will mean iconic Great Walks such as the Routeburn track and the full length of ...
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    1 week ago
  • Māori – Government partnership gives whānau a new housing deal
    The Government is investing  $40 million in a partnership with Māori to get more whānau into warm, dry and secure accommodation, Associate Minister for Housing (Māori Housing) Hon Nanaia Mahuta says.. “We are partnering with Māori and iwi to respond to the growing housing crisis in the wake of COVID-19. ...
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    2 weeks ago
  • Keeping New Zealanders Safe In The Water
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    2 weeks ago
  • Legal framework for COVID-19 Alert Level referred to select committee
    The COVID-19 Public Health Response Act 2020, which set a sound legal framework ahead of the move to Alert level 2, has been referred to a parliamentary select committee for review.  Attorney-General David Parker said the review of the operation of the COVID-19 specific law would be reported back to ...
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    2 weeks ago
  • New Zealand condemns shocking attacks on hospital and funeral in Afghanistan
    Foreign Affairs Minister Winston Peters says New Zealand condemns the targeting of civilians in two terrorist attacks in Afghanistan earlier this week. “The terrorist attacks on a hospital in Kabul and a funeral in Nangarhar province are deeply shocking. The attacks were deliberate and heinous acts of extreme violence targeting ...
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    2 weeks ago
  • Government to close tobacco tax loophole
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    2 weeks ago
  • $62 million package to support families through the Family Court
    The Coalition Government has made a significant $62 million investment from the COVID-19 Response and Recovery Fund to start the reform of the Family Court and enable it to respond effectively to the increased backlog caused by the COVID-19 pandemic. Today Justice Minister Andrew Little introduced the Family Court (Supporting ...
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    2 weeks ago
  • Tailored help supports new type of job seeker – report
    The Government’s expanded services to support people into jobs will help an emerging cohort of New Zealanders impacted by COVID-19. The impacted group are relatively younger, have a proportionately low benefit history and have comparatively higher incomes than most who seek support, as captured in a report published today from ...
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    2 weeks ago
  • A modern approach to night classes
    New funding to boost Government-funded Adult and Community Education (ACE) will give more than 11,000 New Zealanders more opportunities to learn, Education Minister Chris Hipkins said. “This includes a modern approach to rebuilding night classes, which were slashed in the middle of our last economic crisis in 2010,” Chris Hipkins ...
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    2 weeks ago
  • Christchurch Call makes significant progress
    Significant progress has been delivered in the year since the Christchurch Call to Action brought governments and tech companies together in Paris with a single goal to eliminate terrorist and violent extremist content online, Prime Minister Jacinda Ardent says. On its first anniversary, Ardern and French President Emmanuel Macron as ...
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    2 weeks ago