- Date published:
12:23 pm, June 27th, 2008 - 37 comments
Categories: economy - Tags: economy, stats
As expected, the economy contracted 0.3% in the March quarter. The drought brought activity in the agricultural sector down after a recent strong run, the housing sector continued to slow off the back of the boom, oil prices are dragging on the economy in general, and mining was down after a surge in the December quarter from oil drilling. The slow-down in net immigration also slowed growth. It is expected that the economy will do better in the June quarter with the record dairy payout, lower business tax, and higher oil receipts coming into play. The Reserve Bank is now more likely to cut interest rates sooner.
Overall, the economy grew 3.0% last year, above the long-run average.
Naturally, National will use these figures for another hit and run attack. This time is would be nice to see them present their answers. I’m dying to know how they would beat peak-oil driven petrol prices, a drought, the credit crunch, and an international housing slow down. Don’t hold your breath though, National has nothing on the economy they haven’t asked a single question in Parliament on government fiscal policy or the economy since before the Budget, and their ‘economic policy’ fits on the back of a napkin.
[Nat cumulative growth vs Lab here, cumulative GDP per capita growth N vs L here]
Aren’t numbers a wonderful thing. You add all the quarterly growths together to show that Labour is doing a much better job than National. I point to a couple of charts that put declining GDP annual growth alongside falling productivity growth.
Yeah, I look at the long term (the entire periods for the last two governments) and the overall economy, you take the period from a peak in the economic cycle onwards and a metric that suits your purposes. Wonderful.
Bryan. Double check my numbers for me – GDP per capita from Q1 1990 to Q1 1999 went up 8%, from Q1 1999 to Q1 2008, it’s up 23%.
What point are you trying to make with the continued comparison of the GDP growth from 1990 – 1999 as compared to 1999 – 2008.
So yet again, a Labour Government starts with a booming economy, and leaves office with New Zealand in recession, for National to pick up the pieces.
Um, unless one argues that a government has no impact on the economy (in which case, why do we always hear that National is going to make the economy better?) then it’s legitimate to compare governments’ records on the economy by comparing the growth levels experienced while they governed.
That in no way ignores the fact that factors other than the government impact on the economy.
That’s fine apart from the fact that this and other sites (and politicians) almost always ignore the vast differences between the global and environmental factors that affect the economy differently during various periods.
I haven’t seen anybody from the right seriously argue that the government has no impact on the economy, Steve. What I have seen is you argue:
1. That the National Government was responsible for inheriting the nil growth, high interest rates, high inflation, ballooning unemployment, low productivity, high government debt, massively increasing fiscal deficits (despite the Labour Party, of which Helen Clark was the deputy prime minister at the time, knowing full well what the state of the crown accounts was, and lying about it to voters in 1990);
2. That the National Party should take no credit for turning this situation around so that by 1999 New Zealand had a strongly growing economy, low interest rates, low inflation, rapidly declining unemployment, growing productivity, low government debt, ballooning fiscal surpluses, and open crown accounts in 1999 as a result of the fiscal responsibility act);
3. That the global economic shocks in the early 1990s, lower commodity prices, the Asian Financial Crisis, and the worst drought in fifty years in New Zealand were the National Party’s fault;
4. That the growing economy that Labour inherited in 1999 was all Labour’s doing, despite not having to deal with any external economic crises but did have ballooning global commodity prices;
5. That the global credit crunch in 2008 is the sole cause for high interest rates, the highest inflation New Zealand has experienced in 20 years, the flat-lining productivity growth, the high prospect of recession this year, a disappearing surplus, and increasing unemployment, and that Labour should take no responsibility for this.
Oh that’s right. I forgot. Despite the glaring inconsistencies in your economic argument, in your world Labour Good, National Bad.
“It is expected that the economy will do better in the June quarter with the record dairy payout, lower business tax, and higher oil receipts coming into play”
I’m afraid thats not the case. Almost all economists expect June to be even worse as oil prices rose 20% over the June quarter, meat production fell after being artificially inflated in March, the stock accumulated over March is used (there was a large increase in stock accumulation), and construction cools further.
I’m not trying to blame anyone for the slowdown – we’ve had a damn drought along with a credit crunch a collapse in the housing market and a spike in world oil prices, I don’t know if it is possible to avoid a recession in a case like this. However, I think it is important to remember that it is very unlikely that the economy will rebound in June.
Steve: “Yeah, I look at the long term (the entire periods for the last two governments) and the overall economy, you take the period from a peak in the economic cycle onwards and a metric that suits your purposes. Wonderful.”
That is the great thing about blogging: everyone gets to take a stand for their own point of view and debate it. Much better than relying on being fed a point of view by a supposedly ‘impartial’ traditional news media.
I mean really, how impartial was the NZ Herald with it’s campaign against the EFA ? Were they really concerned about the issue or were they just worried about their advertising sales to political parties ?
That the global economic shocks in the early 1990s, lower commodity prices, the Asian Financial Crisis, and the worst drought in fifty years in New Zealand were the National Party’s fault
The asian financial crisis wasn’t in the early nineties. Unless you think that 1997 was the early nineties. We had negative GDP growth in 1998. Do you believe that high oil prices, a drought and the international rise in food prices is because of labour? What about wages you don’t seem to mention them Skeptic. What were they doing in the nineties?
Matt. Perhaps I should clarify, there’s expected to be contraction in the June quarter, but not as fast as in March. Or do I have that wrong?
Bryan. I agree, the Herald is increasingly shameless- look at the headline on the Key’s verison of history story- and it’s working, having the daily paper in the major city against them is a big problem for Labour. Apparently, Labour is still ahead in the polls in Chch and Wellington, but the difference in Auckland is huge.
Bryan, twice in two days I have thoroughly agreed with you!
[lprent: Now that sounds dangerous. Much more of this and I’ll have to suspect a rebellion is due shortly. Now where did I leave the red squad toys..]
“Matt. Perhaps I should clarify, there’s expected to be contraction in the June quarter, but not as fast as in March. Or do I have that wrong?”
That is definitely a point of view that is in line with what a lot of people are thinking – it wasn’t the impression I initially got from reading above though, but I could have just read it wrong 🙂
Personally (as in its my own individual point of view, not anything to do with anyone I’m affiliated with) I think June will be worse than March. A 20% increase in retail fuel prices and stock accumulation over March indicate to me that there has to be some downside risk there. Furthermore, I think the worst of the trade data will be in June, not March.
However, I also don’t think there is much that public policy can do about this, given that its the result of too “supply side” shocks (petrol and drought). As long as firms are happy to horde labour (remember about 6 months ago we were complaining about capacity constraints) the economy will be ready to pick up once the drought is out of its system.
Nice analysis Matt,
SP Your cumulative graph is, you have to admit, slightly wonky for the reasons mentioned above.
To say that a situation is true without the background (such as our rise from the late 80’s recession) and the environments (such as the 87 sharemarket crash which wasn’t Labours fault) is plain wrong.
“Apparently, Labour is still ahead in the polls in Chch and Wellington”
I would love to see the numbers to back that up Steve, have you got them?
mike. unfortunately not, I just saw it mentioned somewhere.
Brownie.. there wasn’t recession in the late 1980s. ther were recessions in the early 1980s and in the early 1990s (see p26 of this) – although it looks like GDP per capita would have been flat or down in part of the late 1980s.
and you can argue that part of the 1990s recession/depression was due to the government’s fiscal position when the fourth Labour government left office, but it was National’s reaction to that – cutting benefits and super that sparked a collapse in demand in the economy. take a look at the GDP per capita graph – it gets worse and worse under National and barely regains it’s 1990 position by mid-1994.
mike. I stand corrected by Roy Morgan’s poll analysis. http://www.roymorgan.com/news/polls/2008/4301/
note, if you’re looking at trends within a city, the polling size is going to be tiny and the margin of error huge.
I see the gap is 19.5 in Auk, 6.5 in Wellington and 11.5 in Chch.
Regarding Wellington, turkeys don’t vote for Xmas do they.
but turkeys do vote for National?
NZ Herald Political Headline: “Labour’s history lesson let down by short-term memory loss (+video)”
Stuff Political Headline: “What war? Key’s abridged history”
ODT doesn’t seem to mention the Key issue on it’s political content home page.
The Christchurch Press: Ditto the ODT.
Boys, you gotta get a thread going on this:
Sorry Steveo, am not trying to hijack, but it’s stunning what comes out of this guys head sometimes. It seems Immigration is no longer the vote spinner it used to be!
“New Zealand First Leader Winston Peters has accused the media of being complicit in a conspiracy between Labour and National to cover up the damage the Reserve Bank does to the economy.”
Surely relaxing control on inflation would hurt most the elderly constituents Winston relies on for support ? Their retirement savings would be eaten away if the RBNZ gets any looser with inflation control. Some would agure the RBNZ is already too relaxed regarding inflation.
Your statistical analysis would have more credibility, Steve, if you could prove that you could at least read a calendar. November 8 is a Saturday.
As a Turkey get it right Steve.Sorry just couldn’t help myself.
I thought you were banned from posting here?
roger do get a life matey.
I’ll take that as a yes then Peter. tut tut …. So how’s your biker gang posse going? You out on the booze tonight?
How low can you go roger?
[lprent: Adolf – remember you’re banned here.]
Here’s great news, lads. You’re no longer at risk of losing any more demographics. They’ve all gone. More Maori vote National, more poor people vote National. More rich pricks vote National. More cockies vote National. More Aucklanders (twice as many) vote National. A few Clergy may stil vote Labour – but even my parish preist (a socialist if ever there was one) has given up on Labour
There’s nobody left except devotees of the union movement.
That’s the price of Cullen’s recession we didn’t have to have. If he had released tax cuts six years ago, restrained growth of gummint bureaucracy, resisted the temptation to spend billions on bribes, we would have been a prosperous nation where people could afford to pay high prices for food and petrol.
Why, you blokes might even have had a show of winning this election.
You fellows are a bizarre lot.
That graph is absolutely nothing to boast over – it shows Labour not screwing up at best.
At worst, add the inflation to it and you find (to use a car analogy) that Labour’s used far more gas to get up the same hill.
You guys are loosing the public – keep up the good work!
You need to back up your ranting with “facts” and/or “rationale” if you want to convince anyone here. It isn’t kiwiblog you know.
Ok, here’s my rationale. I’ve pulled down the figures you used here, plus the inflation data from the reserve bank.
From Q2’92 till Labour took over I make inflation at 1.85%, Labour’s average is 2.63%.
National grew the economy 32%, Labour 28% over that time – so about the same. That’s my point: Labour’s growth is the same, so that’s nothing to boast over
But when I take off inflation each quarter and accumulate that I get 23% real growth for National and 5% for Labour.
Is that the facts you wanted?
Like I said, Labour went up the same hill, but used a heck of a lot more gas to get there.
I might explain this in a bit more detail over at halfdone.
(Just realised: National got that growth in shorter time, so Labour’s 5% is actually much worse)
The GDP data being shown is pretty irrelevant in isolation.
The real data that we should be looking at is GDP per hour. A country could have a good face value GDP trend; but until you break it down to actual productivity ratios it has no real meaning as a long term trend.
If for instance it was showing that along with overall GDP shrinking, the GDP per hour was dropping, we should have some serious concerns. That would indicate that the effort required for producing the GDP was becoming less efficient. That is a bad trend.
If however it was a slight shrinkage; but GDP per hour was improving, then we could consider that to be a correction due to outside influences, but overall we were becoming more productive as a nation. That is a good trend.
Our focus should be on productivity per hour. That requires streamlining and up-skilling the workforce. Nothing else is really going to make a difference. No government in recent times has any real policy around this, and they should have.
Reliance on a single industry to boost GDP has been done before and nearly bankrupted the country. Amusing that it is pretty much the same industry bolstering NZ’s GDP again.
Regardless of which government takes us through the next 3-9 years, New Zealand needs to bring itself from the bottom 1/3 GDP per hour into the top 1/3 GDP per hour.
The only way we can do that is through innovation and R & D. We can’t compete with the likes of China and Mexico from the perspective of relatively low skilled labour.
But by focusing on innovation and education, New Zealand can generate patentable initiatives that will see this country become wealthy again.
Until then we will always be struggling to ride out global economic trends.
Ok, it’s been pointed out on my blog that the figures include inflation already – so we are left with Labour having the same growth since 92 as National.