Sharply improved productivity figures suggest economic tipping point, says Bagrie
A sharp improvement in New Zealand's traditionally feeble economic productivity statistics suggests the economy is at a "tipping point" for a sustained period of stronger economic growth, says the ANZ Bank's chief economist, Cameron Bagrie.
Productivity figures released by Statistics New Zealand today show productivity growth in the year to March 2013 of 2.1 percent, well above the average annual rate of 1.6 percent recorded during the 17-year period since the crucial measure of economic competitiveness was first collected, and equivalent with average annual productivity growth in Australia.
The increase reflected both an increase of 1.2 percent in multifactor productivity - a complex measure of factors including skills, costs, and value added per worker - and a 0.9 percent growth in the amount of capital available per worker," Statistics NZ said.
Bagrie said improving productivity was an unsung part of the current economic recovery.
Everyone's looking at the obvious factors that are driving New Zealand's renaissance," he said, citing strong terms of trade, the Christchurch rebuild, and high population inflows, "but no one's talking about the productivity story."
"I think we hit that tipping point about the middle of last year."
Bagrie said the productivity improvements suggested that business management was improving.
"2008 to 20012 (the recession after the global financial crisis) was a huge wake-up call for New Zealand businesses," said Bagrie, although they had a long way to go to catch up to Australia, which remained "a moving target" despite its productivity record slowing.
Multi-factor productivity, at 1.2 percent growth in 2013, compared with an average annual growth rate of just 0.2 percent over the five years back to 2008, well below the average between 1996 and 2013 of 0.7 percent.
Capital deepening, indicating investment in new equipment to make businesses more efficient, rose 1.2 percent annually between 2008 and 2013, compared with 0.9 percent over the 17 year measurement series.
Labour productivity measures the quantity of goods and services (output) produced for each hour of labour. The latest figures show that 100 products could have been produced in one hour of labour in 1996, compared with 132 in one hour of labour in 2013.
Improvements in multifactor productivity mean more efficient production and are often associated with technological and organisational change, or economies of scale.
From 1996 to 2013, labour productivity grew more in Australia than in New Zealand, up by an average of 2.1 percent and 1.6 percent per year, respectively. Over the same period, Australia's annual average output growth was also higher, at 3.5 percent compared with 2.6 percent in New Zealand.
Productivity is regarded as key to increasing New Zealand's standard of living and is a major driver of gross domestic product - the main indicator of economic activity. Productivity statistics cover approximately 80 percent of the economy and exclude government administration and defence, health, and education.