The New Zealand Economy – The Case for Optimism
There are a few quotes that I could use to sum up where the world is today in the bow wave of COVID, facing the effects of a war, and the spiralling cost of living. One stands out for me.
In the midst of chaos there is always opportunity.
It is a frank lesson from the Art of War, that tends to reach well across all aspects of society, and a lesson no less valid now in a modern Covid age. And not just for us, but for everyone amid an increasingly turbulent global situation.
The truth is, the New Zealand economy rode out the storm of the global pandemic well, all 900-odd days of it so far.
This was by design, and not by accident.
Protecting lives and livelihoods, was our constant goal.
Strong economic support to underpin the very best health response, was our plan.
Having among the lowest deaths in the world, and New Zealand’s lowest unemployment ever, are just two of the measures of success.
We can be proud of that. Now we enter a different phase.
Today we look to the future, and I want to put to you a frank appraisal of New Zealand’s economic positon within the global economy, and the way we will adjust to this developing situation, just as we have adjusted our Covid management earlier this week.
First some context. I’m here today to speak about how despite these globally turbulent times, with war, supply chain disruption, energy shocks and inflation spikes, New Zealand has cause for optimism.
Not just because of the relative strength of our position, although that is part of it, but because of what we have to offer in our own right.
On Monday we announced a significant change to the way we will manage Covid from now on. A simple approach; isolation for those who have COVID and masks in health settings. We move forward without the extraordinary measures of the past.
I know what a difference that will make. They were measures that helped us achieve remarkable results in saving lives and saving jobs.
But we cannot deny they have also cast a shadow, especially on New Zealanders’ mental health. And so now, we get our certainty back.
As New Zealand looks positively to summer, much of the world turns towards a hard winter.
We welcome back our tourists, our migrant workers and our international students, as the clouds begin to darken over our friends elsewhere in the world and the marketplaces we export to. The global outlook for the world’s economies is sobering.
The IMF’s most recent global outlook was titled “Gloomy and More Uncertain”. Global growth may be a full three percentage points lower in 2022 than in 2021.
Much of the world is experiencing an energy price shock, skills shortages and supply chain blockages while at the same time interest rates are being lifted to battle the inflation impacts of all this.
Europe is entering unchartered waters this winter with energy prices 10 times higher than before Russia’s war on Ukraine. Globally, diesel prices increased 74 percent in the last year.
Recently Citi Group said it expected inflation in the United Kingdom to reach 18 percent in the first quarter of 2023 – the highest level for the UK since 1976.
US inflation is at its highest in a generation, and there are fears of entrenchment.
The Chinese economy is slowing, with growth below 4 percent. They are still focused on a COVID elimination strategy that sees more than 40 cities in lockdown. Declining orders from China and Hong Kong are causing concern across the rest of Asia.
Over in Australia, my new counterpart Jim Chalmers has said the global downturn could have a “significant” impact on the economy of our closest partner.
Here at home, we of course are not immune from the impacts of all that.
We have GDP numbers out later this morning, with the threat, but I hope not the reality of a technical recession – two consecutive quarters of negative growth – hanging over the economy.
We also have some banks saying the economy may have grown by over one percent during the quarter.
Forecasting, even as we move to the next chapter of this 1-in-100 year pandemic, remains more of an art than a science.
Our inflation, though below the OECD average, has caused a significant cost of living crisis for New Zealanders, and hardship for many.
Everyone has taken a knock.
It has required out of cycle government support – a cost of living payment for middle and low income earners, fuel excise cuts to help people fill up the tank to get to work and school, and more rapid action on our grocery sector to address what are ultimately systemic issues.
‘Dangerously unique’, was how the economic effects of the global pandemic were projected to be back in 2020. We are now seeing that play out.
I articulate the state of the world not to cause despair, but to define the turbulence so that we don’t allow it to define us.
It would be as remiss not to speak to it, just as it would be to delay confronting it.
We can confront it, aware of the challenges but with economic advantages that are, in many cases, unique to us in New Zealand.
The Background to Optimism
We are a country that is in demand, even more so following our people-first Covid response.
Our goods exports are near record highs, because, even though the global economy is struggling, what we offer to the world is something the world needs.
We have statistics just in that our ski season in Queenstown has hit 80 percent of pre-Covid times.
International student enrolments are nearly at 50 percent of pre Covid times just one month after reopening, and months before the academic year begins.
Our strong action on climate change is in part what is getting free trade agreements over the line with the EU and UK, and what is underpinning the $53 billion dollar record in agricultural exports.
Our green credentials are growing stronger. We now have some of the highest rates of electric and more fuel efficient hybrid cars in the world, now making up 20 percent of new imports.
Tech companies are investing in New Zealand for our renewable energy sources. This includes the likes of Amazon, which is setting up a multi-billion dollar cloud investment here, following in Microsoft’s footsteps.
I know that labour force shortages are of significant concern to businesses, but there are green shoots here too. As the world grapples with skills shortages, our Reconnecting Strategy and Immigration Rebalance are designed to attract the people we need.
More than 7,200 job check applications have been approved allowing employers to go out and recruit internationally for over 48,000 positions.
More than 25,000 working holiday scheme applications have been approved since March and thousands more working holidaymakers are expected to arrive in the coming months.
We have helped keep 50,000 apprentices in trades and training, knowing that they were the first to be let go during the Global Financial Crisis a decade ago.
Apprenticeships are more than 50 percent higher than when we took office, and there are 20,000 more construction workers than there were a year ago.
Our young people are outperforming every other age group in entering the workforce. Filled jobs for people aged 15-19 are up 18 percent compared year-on-year.
Our Government is building the most homes since the 1970s.
Median earnings growth is at its highest rate since records began in 1998, taking pressure off households. At the same time, employment continues to grow.
Jobs, good incomes, a pipeline of work, interest and investment from the world – this is what sustainable economic growth looks like, this is where opportunity stems from, and this is what the Government will continue to support.
This is because it works. I think it is important to celebrate our success, even in a year like 2022 that has felt tough going.
And in a crowded turbulent world – we have something to offer. In the past few months, the Prime Minister has joined with Kiwi exporters to reconnect our economy to the world, travelling to Japan, Singapore, the United States and Australia.
On each occasion, we’ve seen the strength of these businesses’ offerings, and also how in demand they are. Next month I will lead a business delegation to New York marking Air New Zealand beginning non-stop flights to there from Auckland.
Our exporters are not just seeking to be the best in the world – after-all – who isn’t trying to do that. They’re seeking to be the best for the world.
That means offering a product that yes, might be smaller in volume and yes, might be higher in value, but the benefit we reap from that export product as a result means better jobs, which means more resilient workers, which means stronger communities, and a better, more secure New Zealand economy.
This is backed by our efforts to diversify both our export base and export markets – another lesson that COVID has highlighted through the ongoing supply chain disruptions.
We don’t expect businesses to have to build that resilience and diversification on their own. Government helps build New Zealand’s credentials too, and we’ll keep doing that. But we all have a responsibility in these times to chart a course through some pretty rocky global seas together.
Despite all that is in front of us, I believe without a doubt that we will succeed.
We have succeeded as a country during COVID because of the partnership between Government, businesses and workers. We invested more than $20 billion to take pressure off businesses during the pandemic with the wage subsidy, resurgence support payments, Leave Support and more.
Now, it’s our job to build on the success we’ve had, while making sure we work together to keep our economy secure against what the global downturn is about to throw at us.
Because from chaos comes opportunity.
Pathway to Opportunity: Our Economic Plan
We have developed an economic plan to lead us in this next stage based on a simple goal: “to build a high wage, low emissions economy that gives economic security in good times and bad.”
We are putting in place the building blocks for an economy where all businesses, large and small, can thrive and pay higher wages, and where our emissions are heading to net-zero.
The world economy is in a period of structural and geopolitical change.
We will be judged by future generations not just on how we get through this period, but by how we use our strong position coming out of COVID to set up success – socially, environmentally, economically.
The destructive impacts of climate change are being felt now.
There are huge risks to New Zealand from inaction but there are also huge opportunities for our innovative businesses and people to build the high wage jobs of the future while lowering emissions. This approach echoes through NZTE’s current campaign of Do Good, Do Well.
New Zealand starts in a good place here. Because of our investment in in renewables, we are not facing the same energy crisis that European nations are when it comes to reliance on oil and gas for their energy needs.
As we move to implement our plan, future investments will obviously not be at the same scale as during COVID. As with all of you, with the emergency COVID response behind us now, we will enter a period of more targeted spending.
This tighter period will require some tough choices. At a broad level, my focus will continue to be on making sure New Zealand maintains responsible debt levels, and ensuring our path back to surplus.
This must not be done through austerity cuts to spending. These would do more damage than any problem we are trying to solve.
What it does mean is targeting our investments to where they are needed the most and where they can get the most bang for buck for New Zealand as a country.
Our COVID response required us to move quickly to introduce new, temporary economic policies to protect lives and livelihoods, and take pressure off businesses and households during a 1-in-100 year pandemic.
It would be fair to say that over the past 900 days that a lot of our attention has been focussed on the immediate emergency response.
But it would have been irresponsible of us to not also plan ahead. To make sure that as we exited the COVID emergency response settings, we had strong foundations off which to grow the economy. To make sure we had a plan in place, ready to go.
The work we have done on our Economic Plan during COVID means we’re able to hit the ground running following on from the Prime Minister’s announcement on Monday.
The Economic Plan is built around the themes of
- Unleashing Business Potential
- Strengthening International Connections
- Increasing Capabilities and Opportunities
- Supporting Maori and Pacific Aspirations
- Strengthening our Foundations
We’re unleashing the potential for New Zealand businesses. As we shift away from the direct support which took pressure off businesses during COVID, we can also learn from, and grow, other successful initiatives that have helped us come through the pandemic stronger than we were.
Digital support, regional partnerships, R&D incentives, and the investments we’re making in climate change, will all help New Zealand businesses to boost their productivity. Now is the time to ensure these measures are targeted for post-COVID growth.
We’re strengthening our international connections. This isn’t just about the export markets that we will continue to build with the Prime Minister’s respected leadership on the world stage and the Free Trade Agreements we have recently signed with the UK and EU.
We’re ready to deepen our connections with global centres of knowledge and innovation, including through the university and science system, enhance capital flows with our new investor attraction strategy, and attract skills that work for New Zealand through the immigration rebalance.
We’re increasing capabilities and opportunities. If we learnt one lesson from the aftermath of the global financial crisis, it’s that short-sighted decisions to cut funding for skills and training has long-term consequences.
Since July 2020, more than 200,000 New Zealanders have taken up free apprenticeships or trades training. To put that into perspective, that’s about the same as every person living in Hamilton before the pandemic deciding to take up an apprenticeship or a new trade. It is a staggering number.
We’re backing Maori and Pacific aspirations. Our Maori and Pacific economies contain massive potential.
By realising the potential of Maori-owned land, training our rangatahi through initiatives like Mana in Mahi and the cadetship programme, we’re ensuring all parts of Zealand’s economy have the same opportunities to grow.
And we’re strengthening the foundations the New Zealand economy is built on. We are only as strong as the foundations we have. New Zealand’s infrastructure over decades has been underinvested in.
As we target our spending in the post-COVID environment, the one thing we cannot afford to lose sight of is the infrastructure deficit we face. That is why we are investing more than $60 billion over the next five years into our infrastructure.
So while we might look to prioritise investments to take pressure off inflation and workforces, we will continue with our plans to strengthen our economic backbone through continued investment in transport, housing and digital infrastructure.
As the global economy changes, we will change with it. We’ve shown during COVID our ability to remain agile and change when the conditions do.
We will need to face what the global economy is about to throw at us. We will be targeting our investments to where they will pay the greatest dividends.
That means investing to take the pressure off and supporting households – by taking the pressure off and supporting businesses to grow jobs and lift wages.
Because we know from COVID that these are the types investments that work.
To protect our economy and provide economic security in good times and bad.
There are challenges ahead, but there is also every reason to be optimistic about the future.
That is because of the hard work all New Zealanders have done to put us into a strong position, the work that we already have underway and the plan that will drive home our unique advantages.
As a Government just as we have been there in the tough times we are right alongside New Zealanders to take the opportunities that lie ahead.