New Zealand's economic prospects

23 Mar 2016

The state of the economy

Kirk Hope

The economy is in trouble, and it's all dairy's fault. That is the most common complaint I hear today.The drop in global dairy prices has sparked a bit of pessimism. Commentators are calling out the dairy industry as an obstacle to a healthy economy. It's right to be concerned about conditions facing the dairy industry - but the complaint doesn't fully represent what's going on in the New Zealand economy.

The economy has much better prospects than this criticism suggests.Our GDP growth - a bit below 3 percent - is better than most developed countries: the current rate of growth in the US is 2.4 percent, the UK 2.2 percent, Germany 1.7 percent and Japan 1.6 percent.Our growth comes from a lot of sectors - tourism, construction, manufacturing of all kinds, international education, ICT, services, oil and petroleum, and a full range of primary industries.We have a broad-based economy, not as devastated by the drop in dairy prices as might have been the case a few years ago.

It's difficult for dairy right now, but the spirit and resilience of businesses in the industry is outstanding, along with the understanding that long-term prospects are good.

Meanwhile, other parts of the economy are performing impressively. Tourism has overtaken dairy as the country's leading export earner. Large numbers of tourism, travel and hospitality operators are delivering great returns connecting with tourists and showcasing our beautiful country.

The manufacturing sector is very strong. Food and beverage manufacturing – processing the amazing array of fruits, vegetables, meat, seafood and other desirable foods produced in provinces all around New Zealand, mostly for export markets – is a major earner.

High-tech manufacturing is growing fast.Brilliant software and ICT products and services are being produced in several parts of the country, again mostly for export.

International education tends to be an overlooked sector, but is also a major earner, involving many schools and tertiary institutions and communities.

Many other enterprises in the services sector are creating value and earning wealth in the domestic and export markets.

I also see many small businesses and start-ups that are innovative and exciting. They are the future for more growth and development in the future.

I'm privileged to be in touch with outstanding businesses all around New Zealand. I can see how their competitiveness, innovation and hard work are delivering New Zealand's envied economic growth.

So I believe there are good grounds for optimism and confidence.

We also have a reasonably positive environment for business.

Stable policy settings, an education sector that is increasingly providing for the skills needs of business, and a relatively welcoming environment for investment – these are all helpful for future growth. Just as important, we are fortunate to have escaped one of the key mistakes made in other parts of the world in the aftermath of the global financial crisis. While other countries chose to expand their money supply with quantitative easing to shore up their economies, New Zealand instead opted for investing in infrastructure – roads and broadband - a far more growth-enhancing approach.

Of course, the environment for business could be better. Corporate tax is higher here in real terms than in most other developed countries – business needs a tax cut. Significant change is needed to key laws like the Resource Management Act and others. Education for skills for enterprise could be improved further.But the business sector is working hard and delivering growth, and prospects are good.

Kirk Hope is Chief Executive BusinessNZ