'Seven years of famine' tipped for NZ – economist
New Zealand faces a long, slow grind out of the post-global financial crisis environment, says the Institute of Economic Research.
The economic think tank’s latest update says the country’s high level of indebtedness, plus an upturn in the number of emigrants to Australia and other countries, means any pick up in the economy won't happen quickly.
While not talking another recession, principal economist Shamubeel Eaqub says the outlook is for a biblical-like "seven years of famine".
“Periods of deleveraging typically take seven years – that takes us to 2014-15,” he told NBR ONLINE.
“Everything is moving slowly. These adjustments always take time but this one is really slow.”
The institute’s forecast is for 1.5% GDP growth this year and rising to 2.5% through next year.
He notes the Reserve Bank recently changed its stance on the economy and likely interest rate rises – “they’re putting more emphasis now on the risks to growth facing the economy, rather than on inflation".
"That is absolutely the right thing to do,” he says.
One other constraint is the exodus of talent to Australia, which has picked up pace in recent times.
“The sustained outflow of migrants is a drag on the economy. This will gradually reverse as the Australian economy slows and mining investment plans get scaled back.”
However, the exodus risks leaving a long-term deficit, he says.
“The shrinkage of the under-40s population is damaging for the economy, as this cohort represents future growth potential through entrepreneurship and labour market participation.
“This age group also tends to create demand for new homes and durable goods – for example, many two-car households are in this age group.
“This demographic hollowing out is unevenly distributed among regions. Rural areas face greater hollowing out than urban and larger areas.
"The population is also ageing rapidly as baby boomers reach superannuation.
“Population growth has slowed as more people leave New Zealand. Population growth has slowed from 1% a year recently to just 0.6% in the past year.
“Worryingly, the under-40s population declined by 0.2%, while the over 65s grew by 4%. Ageing pressures are here and will intensify.
“For businesses, this means changing consumer demand patterns and a need to carefully plan labour requirements and succession.”
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Comments and questions45
That's why I'm leaving on a jet plane.
See yaa, and see yaa in 2 mths when you work out most other places are worse off than here
Thats why my four adult kids live in Aus.
Its why Im staying.
Why would young people want to stay in NZ? They are only going to be totally indentured by retirement funding demands, Canterbury rebuild costs, student debt and be in deep hock all their lives to subsidise the Boomers fantasy lifestyles...
Because they have water, ability to live in a healthy environment and not get the beejesus taxed out of them. Australia has no water ( over a million litres a day desalinated for Sydney alone ) , stamp duty on houses,cars, anything else you want to think of and income tax is higher - and you have to live in a city which is at least 2 million up to 5 million people - and until you've lived in one, you won't realise how awful that is.
some good points but I expect that Australia will have also have its own demographic problems. One of the reasons that Australia is doing better is that thay are alowed to exploit their natural resources. Also, we need to look at restricting immigration to educated people under say 35 so as to rebalance our population.
Its easy, just allow more people in who will have more children. There's plenty of people wanting to come and live here. We have always been a land of immigrants looking for a better land. Hush, you racists!
Yes but will they have a high level of literacy in english, qualifications recognised in NZ, and a skill set NZ employers can understand? Or will they be from emerging economies who's qualifications employers are unsure of, or are not recognised by our professional bodies. We have a lot of cab drivers and service station workers already!!
Slash govt. and taxes is the only way out of this morass, isn't it obvious yet?
How many "policy analysts", lawyers, middle-managers, bean-counters, sundry schemers and jobs-worths can NZ afford in govt. make work ?
It is so not obvious. The biggest problem is that the number of dollars in circulation is declining as people work to pay off debts and don't top up the money supply with fresh loans.
Tax dollars are still part of the system, so cutting taxes won't help -- not when loans are so cheap that entrepreneurs' biggest risk of finding finance is the impact of general deflation and not high borrowing costs.
Can't wait till peak oil enters the debate.
I totally concur with this artical, Yet no one seems to understand the precarious situation, our butiuitful N Z is in.The answer my friends is lieing in a brave but necessary , economic rethink, and immediate radical change.
N.Z has to take advantage, of the pain of many well healed entruperners whom have made it and that hold great wealth today,theses people are sick of over burdened governments that tax into infinity, Brace your selves for the punch line!!! NZ with all the beautiful scenery,clean, fresh air, a place any one would retire too, in a heart beat .JUST DO AWAY WITH TAX!!!
Crazzy you think? NZ the tax haven it would work the investment would come strong and fast, that investment much of it would be high thec industries our young would stay,the smart young NZ and others would flock back into gods own quicker than you could blink.NZ would need to target a growth rate of 10 million over the next ten years. Tax should be a consumption only flat20%. This country needs to move now before it is past the point of stagnation witch is looming faster than the artcal herein understates, in my opinion, I applaud the eccence of the article Much debate needs to take place, God bless NZ and those who have the courage too make the change
I dispair for this perssons awfil spilling
Don't mention it....you'll awaken the teachers' union brigade who are on about bigger classes and schools losing 'teachers'.
Seems while their lot were in control through the 2000s literacy went to hell in a hand-basket.
You are 100% right. One of our biggest problems is the Nanny statism, loss of discipline, teaching unions and a teaching system which has hardly changed in 50 years. Imagine if medicine had changed at the same pace of teaching reform? We need a paradigm shift in how teaching is done, using technology to free up good teachers, get rid of those who just instil grievances and entitlement, taking children to political rallies ( only the lefties and commies do that have you noticed?) and we'd be on the road to a better future. Importing endless breeders who are on the dole at our expense is a doomsday scenario for NZ.
Gvt needs to take a much more proactive approach to the economy.
For example, instead of depressing the economy with low interest rates, they should be setting rates at a level that will attract ,not deter, savings.As has been said before,only then will we start to build some domestic investment capital.
And only then will we be able to fund our continuing deficits internally rather than having to borrow from and/or sell assets to overseas interests.
Why Gvt fails to recognise this escapes me.
Peter Martin
Peter I you want foreign capitail, inflows you don't tax it
In response to Peter, do away with taxing savings On term deposits watch the next egg grow before your very eyes
John Key's continuing 'do-nothing ' govt legacy will make NZ a cemetery.
The baby boomer bell curve , once past, will leave an economy too heavy for the remainders to service. A south pacific Greece.
Government needs to put in place policies that will encourage,rather than discourage,growth.
For example as has been said repeatedly, interest rates should be set at a level that will attract savings;instead the reserve bank sets interest rates at a (low)level that discourages saving.
And without savings we will not build domestic investment capital which means we are doomed to continue to fund our continuing deficits from overseas in terms of borrowing and/or asset sales.
Gvt seems afraid to take a bold forward-looking stance probably because of their undue focus on not losing votes; a focus on the future rather than the short term is what is required if we are to get out of our economic flat-line.
Peter Martin
Haha, You obviously don’t have a mortgage. The key word on your comment is ‘balance’, today’s levels are fine… perhaps a point or point and a half more, which is going to happen in the next couple of years, should be better, I’ll give you that. But I tell you another key concept lots of people are missing: ‘long term’, we all live pretty good long lives these days, i.e. I’m 40 and playing sports like I’m 18 (plus the aches the days after of course) and I’m planning on another 20 years of that plus 10 +/- another 10 of a decent senior years, this considering I don’t die of a heart attack tomorrow. So I’m staying in NZ, 1- because it is a top 10 country in the world to live and raise family, (please don’t give me the bull of maori/pacific families) and 2- there are always good and bad times, and you go through the bad times, enjoying life as much as you can, and enjoy even more trough the good times, that will never be Australian or Danish or Swiss good times, they’ll be KIWI good times. So bring on the famine… I’ll eat potatoes and rice all the way through it, till I can afford snapper again.
Andy you the man!!! if it gets to that you can eat my spuds as well. lll be gone.Every one comments on loyalty to NZ but Like the pollys no one offers any constructive options. but at least Peter offered some thing.
My friend, good luck with your life wherever that might be, and I honestly say that. In terms of proposing the solution to all our problems, including how to fix the GFC, I'm sorry I can't do that. All I can do is to vote according to the closest I feel about the policies the present to me. In the meantime I'll keep working, saving, and enjoying life. And don't confuse patriotism with selfishness. Like 99% of Kiwis, I’m selfish not patriotic, I wish that was different, but I’m trying to do my best as a father to change this attitude with my two young children.
I'm with you Andy. Life is what you make it.
The more of these NBR posters that leave, the better. All they do is whinge....
Be reasonable, do it my way
If you want to leave, leave - dont make like its someone elses fault.
"Give me one reason to stay here, and I'll turn back around"
John Key is going to wake up one morning in 10 years time and realise he's blown a once in a generation opportunity to really leave a legacy by being politically bold and sorting some of the fundamental problems in this country.
Its a crying shame, because next time round we will probably have a Labour/Green govt who will hammer the final nail into our coffin and send us into terminal decline.
I'll never leave this country but it will very painful to watch it all unfold.
The patriotic will stay in our country. Eventually the nine years of the currupt Helen Clark government of squander will be caught up unless there is a rush of blood to the nation's heads and we wind up with wet Shearer and his currupt colleagues.
I don't think NZ will look too bad if another earthquake hits Japan and the holding pool of #4 drains and the entire northern hemisphere becomes a right off.
supply and demand. simple as that. The complaint is the high dollar. But a high dollar means our domestic consumption is cheaper and so is our international consumption. Oil, machinery, IT, consumerables etc. Accordingly, to offset our international and domestic consumption we need to export more and at a better quality to others. The reason australia is doing well is demand driven. The demand for more resources sourced from australia. So supply picks up to meet that demand stimulating the domestic inputs into that supply. For NZ to increase standard of living it is about more and better not weaker dollar or lower interest rates for that matter. Lower dollar just means domestic and international consumption becomes more expensive and reduces living standards. For instance, is it an increase to living standards that due to a low dollar the 3 year old imported car one was planning to buy becomes a 6 year old car as that is all one can afford with a depressed currency? As for tourism again it is about the product. NYC is expensive but people still visit because of the product on offer relative to other destinations.
come on...don't be down! New Zealand is a world leader!!!!!! It's got an Emissions Scam.....It's ALLLL gooooood!
Lost my three sons to 3 other nations.Seems where they are they have hit the jackpot. Seems when we give them the work ethic they give it to other nations.Wonder if they were given the benefit mentality,would they still be here, in the best country in the world ,demanding expectations or entitlements without doing any work.,,and sucking off the working population.Seem to think thats what students with interest free loans do or expect.
Cut the expected entitlement of tax payer funded super and then cut interest free student loans and you have a deal. This would make tax rates plummet.
Till then, I’m staying in Australia, happily paying interest on my loan and paying higher taxes to the Australian public.
If you have lived in a number of countries you'll not be overly concerned on the numbers of kiwis leaving, especially given there are still the majority who stay. And, when talking with those that leave it is for the experience overseas which attracts so much which is the case for most countries. Of course there are the higher wages, more opportunity initially but all in all it is for the different experience. Cannot blame a government for this; it is intrinsic in people to do what is in their interest at the time. Having spoken with and known several who have left none have ever quoted the government as their reason for leaving.
When you come to NZ and choose to live here it is for the reason of wanting to be in a great place, with generally speaking great people, a country which is on the whole much better off than the majority. NZ has a stable environment and government which is different from a lot of countries.
No one here has talked in anyway about actually making some MORE money as a country, we need more deck chairs added to the deck not an endless reducing circle of rearranging the bloody things, that means making it worthwhile to earn offshore money, may be that's less tax for export earners, cheaper power to manufacture with, whatever it takes, why all the messing around?
Always a lot of talking the talk she'll be right number eight wire BS - time for some walking the walk, lets get out there as a nation hungry to get orders using our natural advantages to underpin competitiveness and make some money! When was the last time you saw an ad for NZ inc on CNN or BBC? everyone else is doing it, why don't we? where is the national call to action to get another 1000000 vistors here a year, why aren't we making trains, ships and planes or a least sharing in the building of them so we can power more science and technology graduates, please someone find our mojo.
Maybe we just need to address our 'knocker' culture. Otherwise known as 'tall poppy' syndrome. Perhaps people are leaving because they are not given a shot and they know deep down if they do do all right theyll get a hard time for it. Perhaps the anonymity of overseas life is an attraction.
Yeah right stick our heads in the sand all will go away?
In reply to anonymouse 3.05 pm. The reason why we are not making more money in NZ, is because at regular intervals during the last 40years the voters have opted for 'FREE' handouts, and sucumbed to election bribes. These have all diverted what savings the country once had into unproductive avenues of welfare support, and easy options regimes.
I don't see the prospect of any great change in this political mindset in the near future; in fact when I read the submissions on the MMP Review website, there is a definite desire for the country to be managed by the '
lowest common denominator single issue/grievances parties'. Hardly the recipe for future economic success.
Voting to retain MMP at the last election referendum,was a major mistake; as was the original choice, albeit driven by the media, to change to MMP; there were far better options which would have given much more stable government, without the 'Kingmaker ransom' situation which we now experience, and may well suffer again at the 2014 election.
You have been warned!
My friend you have hit the nail on the head. Just that alone with considered thought would make one look for green pastures. YOU ARE SO RIGHT.
NZ is sitting on a heap of potential - gold, oil, extensive fish farming to name just three. All we need to to do is
1) make it hard to suck off the social welfare system (it should only be there for those who really need it and don't have the health or mental ability to provide for themselves)
2) ensure that we have an immigration system that provides work permits for the skills we need - and has the teeth to make sure they go home when the job's finished or their time is up
3) get bullish when it comes to permitting business growth and "risk takers" - sure we may loose a bit of bush or nice scenery at the beach - but without jobs and growth of opportunity we'll end up without many of the next generation and without the needed income as a country
4) ensure that we have a fair tax system that encourages hard work and sucess
I have thrown in the towel to try to get ahead, 40 years is enough for me, had enough of banging my head against a brick wall of being self employed, its just got to hard, thats it.
export lead growth is so out of date - lets go for more self sufficiency. We are still a new country and personal debt is a basic consequence. People need to be adding value by working and creating long lasting stuff
Have to agree with most all the comments. An outcome is saved money is loosing value. Savers (Aging Kiwi’s) are being penalised and subsidising borrowers as they are not paying market rates. Low interest rates have not reversed borrower’s debt habits, just made it worse.
Debt excess is the cause of financial failure in every instance.
Zero tax on NZ resident savings income is prudent. Savers are currently placing money into property and other assets to inflation proof cash. Let savers keep up with true inflation ( not the bull served to us by RBNZ) and perhaps profit a little by allowing the market to determine the value of money and borrowing will return to affordable and sustainable levels