Preparing for the future: Emerging priorities for the New Zealand - PowerPoint PPT Presentation

Preparing for the future: Emerging priorities for the New Zealand economy David Skilling December 2007 www.nzinstitute.org

AGENDA 3. Future challenges and opportunities 2. Near term challenges and opportunities 1. New Zealand’s current course and speed Time 2

NEW ZEALAND’S PROLONGED RELATIVE INCOME DECLINE WAS HALTED DURING THE 1990s Real per Capita GDP (OECD average = 100) 150 USA 140 130 Ireland 120 Australia 110 Finland 100 90 New 80 Zealand 70 60 50 0 5 0 5 0 5 0 5 7 7 8 8 9 9 0 0 9 9 9 9 9 9 0 0 1 1 1 1 1 1 2 2 Source: OECD. 3

Source: OECD. MOST OTHER OECD COUNTRIES A LARGE INCOME GAP REMAINS BETWEEN NEW ZEALAND AND 100 150 200 50 0 Luxembourg Income Norway High United States Ireland Iceland GDP per capita (PPP) indexed to OECD average, 2005 Switzerland Netherlands Austria High-Middle Income Australia Denmark Canada Belgium United Kingdom Sweden Finland Japan Germany France Greece Italy Low-Middle Income Spain New Zealand Korea Czech Rep Portugal Hungary Slovak Rep Average Low Income Poland OECD Mexico Turkey 4

TO EXPLAIN NEW ZEALAND’S LOW INCOME LEVELS, WE NEED TO LOOK AT THE DRIVERS OF PER CAPITA INCOME Labour Utilisation Total hours worked x Per = capita income Labour Productivity Output per hour worked 5

NEW ZEALANDERS ARE HARD WORKING BUT ARE NOT AS PRODUCTIVE AS WORKERS IN OTHER COUNTRIES 130 Iceland Luxembourg 120 2006 (OECD Average = 100) Hours worked per capita, New Zealand Canada 110 Japan USA Australia Spain Switzerland Ireland Denmark 100 Greece Finland Sweden UK 90 Austria Netherlands Germany Italy Belgium 80 France 70 70 80 90 100 110 120 130 140 150 Output per hour worked, 2006 (OECD Average = 100) Source: Groningen Growth and Development Centre and the Conference Board, Total Economy Database, January 2007. 6

2. CURRENT PRIORITIES FOR ACTION TO RAISE PRODUCTIVITY New Zealand cannot grow its economy by continuing to rely on growing the number of hours worked The challenge now is to increase labour productivity growth in a substantial and sustained way Going forward, New Zealand needs to focus on addressing the constraints that impact on New Zealand’s labour productivity growth Need to focus on three (related) constraints in particular: – Low physical capital intensity – Low investment in knowledge and human capital – Low levels of international economic engagement 7

NEW ZEALAND’S BUSINESS INVESTMENT IS LOW Business Investment as a % of GDP Australia 15% OECD Median* 10% New Zealand 5% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Source: OECD. *Czech Rep, Luxembourg, Poland, Hungary, Portugal, Slovak Rep, and Turkey not included. 8

NEW ZEALAND’S CAPITAL MARKETS ARE SMALL Market capitalisation of national exchange as a % of GDP, 2006 300% 200% 100% 0% Luxembourg Switzerland Czech Rep NewZealand Singapore Iceland USA Australia Turkey Ireland Germany Slovak Rep Poland Hungary Canada UK South Spain Japan Austria Mexico Norway Greece Italy Source: IMF; Deutsche Bank; relevant national exchange for Iceland, Canada, Slovak Rep, and Czech Rep. 9

Source: OECD. Note: 2003 or most recent year available. NEW ZEALAND’S R&D SPEND IS HALF OF THE OECD AVERAGE Gross Expenditure on Research and Development (GERD) % of GDP, 2003 0.0 1.0 2.0 3.0 4.0 Sweden Finland Japan Iceland Korea USA Switzerland Germany Denmark Belgium Austria France Canada UK Netherlands Norway Luxembourg Australia Czech Rep Italy New Zealand Ireland Spain Hungary Portugal Turkey Greece Slovak Rep Poland Mexico 10

NEW ZEALAND MAKES LITTLE INVESTMENT IN KNOWLEDGE Investment in knowledge as a % of GDP, 2002 6% Higher education 4% Software R&D 2% 0% l d s a k d s d n m e n a a D n d n i i a r n e n c e e g l a o C a n a a n a t a p r d u p d m a r o a E l a a l l e t a t n t e S g l K r r s S J O n w e r i o r n F u e F e I Z P i S h A d K D e t w e t d i e N n e N t U i n U Source: OECD. 11

NEW ZEALAND EXPORTS LESS THAN MOST DEVELOPED COUNTRIES Exports as a % of GDP, 1990 and 2005 1990 168 142 2005 100% 80% 60% 40% 20% 0% d d a e p a y k d a d n e a n D A n n a e r e r n n i n i e l i l r a S o a C i a a a w r R t h a a d i o p s m h p l r U l E C l a l r e r u K n t a e C S k e o s w n O e A i g r a z N F u e h Z I S n v t A D t i w i o u w S l o S S e S N Source: OECD; national government statistics for Chile, China, and Singapore for 2005. 12

NEW ZEALAND IS DISTINCTIVE IN HAVING A LOW AND REDUCING OUTWARD FDI STOCK Outward FDI as a % of GDP 100 1980 1990 80 2004 60 40 20 0 d e s a d e n k a n A n r e n r e c i i i r S a a l o i a n a a d t r m s p p U a t r l e l a n u n t S a w n r s i u e F A g F u e S o Z n A D C i w S d e e N p o l e v e D Source: UNCTAD. 13

3. FUTURE CHALLENGES AND OPPORTUNITIES Technology Demographics •Communications •Aging •Processing •Ethnic mix THE NEW ZEALAND •New environments OF THE FUTURE Environmental Globalisation and Constraints Agglomeration: •Energy availability International mobility •Weather patterns Rise of Asia of goods, capital, •China and possibly India become people global leaders 14

NEW ZEALAND HAS AN AGING POPULATION Projected Median Age 50 European All New Zealanders 40 Asian 30 Pacific Island Maori 20 10 0 1 6 1 6 1 6 1 6 1 6 1 6 1 9 9 0 0 1 1 2 2 3 3 4 4 5 9 9 0 0 0 0 0 0 0 0 0 0 0 1 1 2 2 2 2 2 2 2 2 2 2 2 Source: Statistics New Zealand. 15

NEW ZEALAND’S POPULATION MIX IS CHANGING Auckland workforce by ethnic group New Zealanders aged 15-64 2016 100 7% Pacific Island 15% 13% Asian 23% 75 Maori 11% 14% 50 European 51% 66% 25 0 2001 2006 2011 2016 Source: Committee for Auckland. 16

THE IPCC PROJECTS AN INCREASE IN AVERAGE GLOBAL TEMPERATURES OF 1.8 TO 4.0 DEGREES CELSIUS BY 2100 Projected range of global temperature in 2100 Source: International Panel on Climate Change AR4 Summary. 17

NEW ZEALAND’S ECONOMY IS EMISSION INTENSIVE GHG emission intensity per unit of GDP, 2002 1 0.8 OECD overall 0.6 0.6 0.4 0.2 0 Germany Luxembourg Italy New Zealand Hungary Finland Ireland Netherlands Iceland Norway Switzerland Australia Czech Poland Slovak Greece Portugal denmark UK Japan Austria France Sweden Canada USA Belgium Spain Note: Data not available for Turkey, Korea, or Mexico. GHG = Greenhouse Gases. Source: OECD. 18

THE ECONOMIC RISE OF ASIA Distribution of global GDP since 1500 100% Western Europe 80% USA 60% Canada, Australia, New Zealand All other countries 40% Rest of Asia 20% India China 0% 1500 1700 1820 1900 1960 2000 Asia population as a % 65% 67% 68% 56% 56% 59% of global population Source: Angus Maddison, OECD. 19

MASSIVE GROWTH IN INTERNATIONAL FLOWS OF GOODS, SERVICES, AND CAPITAL World stock of outward FDI, US$t World exports, US$b 10,000 10,000 8,000 8,000 6,000 6,000 4,000 4,000 2,000 2,000 0 0 1980 1985 1990 1995 2000 2005 1980 1985 1990 1995 2000 2005 Source: UNCTAD; World Bank. 20

INCREASING INTERNATIONAL MOBILITY OF PEOPLE Expatriates as a % of total population and highly skilled population Source: OECD. 21

RAPID EVOLUTION OF THE INTERNET FROM 1995 Internet Users as a % of world population, 1995-2006 20% 1, 083m people in 2006 15% 10% 451m people in 2000 5% 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: W3C. 22

IMPLICATIONS FOR NEW ZEALAND The significance of many of the constraints facing New Zealand will increase over the next few decades – Labour shortages, energy prices, changes in global capital markets There are also some very significant opportunities, some of which are particularly relevant to New Zealand – Technology allows some of the labour and energy constraints to be overcome, and for new business models to be deployed. – The rise of Asia brings the global economy closer to New Zealand But to take advantage of these opportunities, New Zealand needs to gear up and make the required investments This will require much more than a handful of sensible, but modest, changes – this requires transformation 23

Preparing for the future: Emerging priorities for the New Zealand economy David Skilling December 2007 www.nzinstitute.org