New Zealand's Economy & Shopping

New Zealand Economy

GDP Growth

Unemployment

Inflation

Business Confidence

Short-term Outlook

The Property Market

Where We Stand in the World

New Zealand's Cost of Living

An Economic Snapshot of New Zealand

New Zealand Economy

New Zealand has a very open economy and Government no longer has a direct involvement in price fixing, wage bargaining, industrial relations, interest rate setting etc., rather it takes the view that it will create an environment and that the market will establish respective levels.

After being unshackled from many years of Government control and inefficiency the New Zealand economy responded positively throughout the mid to late 1990's after an initial period of economic decline. Gone were the powerful trade unions, and the inefficient state subsidised and inefficiently run Government corporations. Gone were most of the regulations and the constraints imposed by Government. A sell down of assets saw the emergence of lean, yet efficient organisations which rank among the best in their respective fields. 

Successive Governments approach was to restructure along several fronts and saw the introduction of legislation which:

1. Removed the statutory right of unions to represent all workers - individual contracts were introduced if that suited the parties. Further reforms during 2009 and 2010 allowed for example 90 day trial periods of employment and no claims against dismissal (except in certain imited circumstances).
2. The Government passed the Reserve Bank Act which required the Governor of the Reserve Bank to ensure inflation was not less than 0% and not more than 2%. This was later broadened to 0-3% in the late 1990s. The Reserve Bank acts independently of Government - an innovation that has of course been adopted by many countries since.
3. The Government created what is called the "Closer Economic Relations" agreement with Australia (our largest export market) which effectively created an almost seamless flow of goods and services across both economies (when you could get the Australians off their backsides).
4. The Government corporatised and then privatised most state utilities. Examples are Telecom Corporation, New Zealand Post, NZ Forestry Corporation, Air New Zealand, State Insurance, Government Printing, various ports and Tranzrail to name but a few. Government recently brought back the rail lines and company and has rebranded it Kiwirail. The Government also established a 100% New Zealand (taxpayer) owned bank called Kiwibank.
5. New Zealand is an active member of APEC and was the first developed country to sign a Free Trade agreement with China in 2009.

New Zealand has close ties with Australia. With the signing in 1989 of The Closer Economic Relations Treaty (CER) access for New Zealand companies to the large Australian market was theoretically made easier and in large part successful. New Zealand manufacturers and entrepreneurs have taken full advantage of the opportunities presented with the Australian and New Zealand economies serving as "domestic" markets with each other in effect. The free flow of labour between the two countries is beneficial to both nations workers. During cyclical downturns in N.Z, our workers travel to Australia and when the Australian economy weakens the flow reverses. China has become New Zealand's second largest trading partner.

GDP Growth

GDP growth is cuurently running around 1% on an annual basis but recovery from the global recession has been slow and patchy. New Zealanders are responding to new signals from Government (significant personal tax cuts but increase in 'sales' tax, GST to 15%) by paying down personal debt and increasing their savings. This has contributed directly to the lower than usual rate of economic bounce back after the prolonged recession.

Unemployment

Unemployment is projected to fall over the next two years. It currently stands at 6.7%. While this is high by our standards is still less than most of our trading partners, and gives New Zealand among the lowest rate of unemployment in the developed world (of which about one third is skilled unemployment). 

Inflation

Underlying inflation has largely been successfully managed within the statutory band of 0% to 3% and the Reserve Bank is charged with managing this. During most of the 1990s qnd until around 2005 inflation averaged slightly over 1.5% but between 2006 and early 2008 it inched its way up and over the 3% maximum allowed by law. In response to the financial crisis and more latterly the Christchurch earthquake the Reserve Bank Governor lowered wholsesale interest rates in order to stimulate growth. Inflation is currently siting around 4% owing to the increase in Goods and Services Tax in October 2010 from 12.55 to 15%. Inflation is expected to be back at 2% by early 2012.  Most New Zealanders with floating mortgage interest rates are now paying 5.50% 6.25%.  

Inflation is sitting at around 4% which is extremely high by our standards but caused by the 20% increase in Goods and Services tax in October last year when this consumption tax as raised from 12.5% to 15%. Inflation is expected to fall to its more usual 2% by this time next year once those 'one off' effects are worked out of the system. With an economy that now boasts a GDP of $200 billion with prudent economic policies and some political will to cut back in the growth in Government spending things are looking quite perky.

Business Confidence

Business confidence remains stable with most businesses now confident about their own short term future even if they are worrying about everyone elses.

The earthquakes that have struck Christchurch in September 2010 and February 2011 have impacted on national business confidence given the cost of rebuilding infrastructure and in particular housing.

Short Term Outlook

So what is the short term outlook for the economy? The IMF has just upgraded New Zealand's growth forecast for 2012 to 4.1% GDP growth. This is in line with many other forecasters – both local and international.

This would represent a pleasing jump from this year's anaemic 0.9% brought about largely by the earthquake in Christchurch which has severely curtailed growth in the short term as economic activity in the Canterbury region fell.

The Property Market

The property market appears to be regaining its health in particular in sales volumes which have grown steadily this year. Prices are still 2% lower than this time last year but lower interest rates, business confidence returning after the event in Christchurch, strong commodity prices and a dollar that relative to the Australian has fallen in recent times (driven in particular by our interest rate compared to theirs).

Housing in particular is beginning to bounce back with Auckland leading the way thanks to an increasing house shortage (residential building consents have fallen to historically low levels) and internal migration to the region (Christchurch residents heading north to sable ground).

This improvement isn't limited to Auckland with sales volumes across the country up 5.4% in March compared to February. The number of sales was up 1% from the same period last year. In terms of price the median sales value was NZ$365,000 which was up a little over $4000 over this time last year. Furthermore the fact that the median time to sell a house in Auckland has fallen to 15 days is clear evidence of building demand.

There can be little doubt that Auckland is heading for something of a building boom in 12 – 18 months along with Christchurch – but for very different reasons.

This 'boom' may not be as spectacular as previous years New Zealanders continue to pay down debt at rates not seen for a few generations. The Reserve Bank Governor is already sending out none too subtle warnings…..as he has concerns about record commodity prices being paid for our primary produce.

There is little doubt that a structural shift has taken place internationally and the record prices farmers are receiving for their produce is being caused by competition for our commodities thanks to rapid urbanisation along with fast expanding middle classes in countries like China. Between 1975 and 1995 per capita consumption of meat trebled and milk quadrupled in China. No one grows things like we do and it seems that this structural shift will see commodity returns stay ahead of inflation for at least the next five to ten years. As arable land internationally becomes more scarce New Zealand is well placed to ride the back of an ever hungrier world.

Where We Stand in the World

In another encouraging sign New Zealand has boosted its rankings in the World Economic Forums annual survey measuring how countries take advantage of new technology and we are about to overtake Australia (call us pathetic but this is important to us). New Zealand now lies 18th out of 138 countries in terms of our readiness and capacity to use technology to boost competitiveness and therefore to improve the lives of our people.

The Government has begun its roll out of fibre optic cable across 955 of New Zealand which will allow us even better upload and download speeds. Sir Peter Jackson has complained, rightly in my view, that while we enjoy generally good upload and download speeds it isn't yet good enough for serious post production of movies for example and this hampers the country's ability to take full advantage of this major new export industry we have been developing.

New Zealand's Cost of Living

We are often asked how expensive New Zealand is as a place to live. This is a difficult question to answer as peoples lifestyle expectations are different. For a refugee we are sure that cities like Auckland are very expensive. For Bill Gates it would be a steal. 

However what we can say is that in a recent survey of 131 cities Auckland was ranked as the 107th most expensive to live in (Wellington is apparently New Zealand's most expensive). We are cheaper than Nairobi if that means anything to you and one above Tashkent, about the same as Kuala Lumpur and Rio De Janeiro. By comparison Sydney in Australia is 72nd, Melbourne 81st and Perth 94th. Moscow is currently is the most expensive.

To illustrate what we can afford the following table records the percentage of New Zealand households owning at least one of each of the following items:

Further, New Zealand has the second highest car ownership rate in the world after the United States. Interestingly more of us seem to prize colour televisions than telephones! So you are looking at coming to a highly mobile, literate and wired (more than 75% of homes have a computer) country where the vast majority of its citizens can afford the so called luxuries in life - even if men do spend alarmingly little on shoes!

An economic snapshot of life in New Zealand:

Out of every $100 a New Zealander household earns, $23.90 goes on housing costs, such as mortgages or rent, maintenance and rates. Other costs associated with the running of the home, such as power, appliances, furniture and so on, take a further $12.80, food $16.50 and transport a further $15.90. You will see then that Mr and Mrs Average do not save very much!

Within New Zealand society there are of course those that earn a great deal of money and those that do not earn very much at all. For the purpose of giving you an idea of how different groups spend their income each week, in the table below we define:

• a low income household as one earning between $20,700 - $25,899; and
• a medium income household as one earning between $43,500 and $55,000; and
• a high income household as one earning $76,700 and $101,099

The second column in the table is low household income earners, the third is medium household income earners and the fourth is high household income earners. 

So there you have it, a snapshot of life in New Zealand. Many of these figures seem somewhat irrelevant and frankly hard to believe (men spend $1 a week on shoes/$52 a year?) but they do come from the Department of Statistics and overall we believe that they "paint" a realistic picture.

Perhaps the next page you should read is that on salaries to see which of these categories you might expect to fall into.