New Zealand.

62 Pages·1979·4.06 MB·English

by  OECD

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
ORGANISATION DE COOPERATION ET DE DEVELOPPEMENT ECONOMIQUES
BASIC STATISTICS OF NEW ZEALAND
THE LAND
Area (1000 sq. km) 268.7 Urban population1, % of total
Agricultural area (% oftotal) 64.6 (23.3.76 census) 68.2
Grassland (% oftotal) 48.7 Population of major cities and
urban areas (23.3.76 census):
Urban
City
area
Christchurch 172.0 295.3
Auckland 150.7 742.8
Wellington 139.6 327.4
THE PEOPLE
Population, 31.12.77 (1000) 3151.9 Civilian employment, April 1977
No, ofinhabitants persq. km 11.7 (1 000) 1215.0
Net rate of increase per 1000 ofwhich: Agriculture 140.9
inhabitants (average 1976-77): Manufacturing 308.4
Natural increase 9.3 Trade (wholesale
Net migration -5.6 and retail) 192.9
PARLIAMENT AND GOVERNMENT
Present composition ofParliament: National Party 50
Labour Party 41
Social Credit Party 1
PresentGovernment: National Party
Nextgeneralelection: at latest by November 1981
PRODUCTION2
Gross National Product, 1976-77 GNP per capita, 1976-77 (S NZ) 4070
(S NZ million) 12786
FOREIGN TRADE (1977):<
Main exports (percentage of total): Main imports (percentageoftotal):
Meat and meat preparations 23.1 Machinery and transport equipment 31.3
Dairy products 13.6 Manufactured goods, etc. 20.6
Wool 17.5 Mineral fuels, lubricants, etc. 15.5
Pulp, paper and paper board 4.5 Chemicals 13.9
THE CURRENCY
Monetary unit: New Zealand dollar Currency unit per US dollar,
average of daily figures:
Year 1977 1.0252
October 1978 0.9317
1 Defined as the population inthe 24 statistical urban areas plus all townsetc. with population
exceeding 1000.
2 Fiscal year beginning 1st April.
3 Year beginning 1st July.
Note An international comparison ofcertain basicstatistics is given in anannex table.
OECD ECONOMIC SURVEYS
I U !
NEW ZEALAND
ORGANISATION FOR ECONOMIC COOPERATION AND DEVELOPMENT
The Organisation for Economic Co-operation and Development
(OECD) was set up under a Convention signed in Paris on 14th
December 1960, which provides that theOECD shall promote policies
designed:
to achievethe highestsustainableeconomicgrowth andemploy¬
ment and a rising standardofliving inMember countries,while
maintainingfinancialstability,andthustocontributetothedeve¬
lopment ofthe world economy;
tocontributetosoundeconomicexpansioninMemberaswellas
non-member countries in the process ofeconomic development;
to contribute to the expansion ofworld trade on a multilateral,
non-discriminatory basis in accordance with international
obligations.
The Members ofOECD are Australia, Austria, Belgium, Canada,
Denmark, Finland, France, the Federal Republic ofGermany, Greece,
Iceland, Ireland, Italy,Japan,Luxembourg, the Netherlands, NewZea¬
land,Norway,Portugal,Spain,Sweden,Switzerland,Turkey,theUnited
Kingdom and the United States.
TheSocialist FederalRepublicofYugoslaviaisassociatedincertain
work oftheOECD,particularlythatoftheEconomicandDevelopment
Review Committee.
The annual review ofNewZealand
by the OECD Economic andDevelopmentReview Committee
tookplace on 20thNovember 1978.
©OECD, 1979
Queriesconcerningpermissionsortranslationrightsshouldbeaddressed
to:
Director ofInformation, OECD
2, rue André-Pascal, 75775 PARIS CEDEX 16, France.
CONTENTS
Introduction 5
I Recent developments 6
Demand and output 6
Incomes 10
The labour market 11
Prices 15
The balance of payments 18
II Economic policy and short-term prospects 21
Economic policy 21
Fiscal policy 22
Monetary policy 25
Wages policy 30
Short-term prospects 31
III Medium-term issues 32
Progress in the adjustment process 32
Policy issues 36
IV Conclusions 39
Annex
I Recent developments in monetary management 43
II Medium-term prospects 45
III Calendar of main economic events 47
Statistical annex 50
TABLES
Text
1 Expenditure and output 8
2 Household appropriation account 10
3 Net permanent and long-term migration 12
4 Supply effects on measured unemployment 1975-1978 14
5 Net emigration 1976-1978. Occupational and age distribution 15
6 International comparison of consumer prices 17
7 Balance of payments 18
8 Current account net invisibles transactions 21
9 Summary of budget transactions 23
OECD Economic Surveys
10 Formation of the volume of money 27
11 Short-term prospects 32
12 Change in real income per capita in selected OECD countries 33
13 Shares of national income 35
Annex II
Balance of payments projections 1977-1985 45
Statistical Annex
A. Gross domestic product 50
B. Gross domestic product by sector 50
C. Labour market 51
D. Prices 51
E. Money supply and selected liquid asset holdings of public 52
F. General government revenue and expenditure 52
G. Balance of payments 53
H. Imports: value, volume, prices and commodity group 54
I. Imports by country of origin 54
J. Exports: value, volume, prices and commodity group 55
K. Exports by country of destination 55
DIAGRAMS
1 Recent economic indicators 7
2 Manufacturing output and stocks 9
3 Real wage rates and earnings 11
4 Unemployment and vacancies 13
5 Price developments 16
6 Trade prices and volumes 20
7 Government expenditure, revenue and deficit 24
8 Monetary indicators 26
9 Banking indicators 28
10 Growth of export and import volumes 34
INTRODUCTION
The NewZealand economy has now been in a protracted period ofadjustment
since about mid-1974. The severe deterioration of its terms of trade in that year
coincided with a cyclical peak in domestic demand so that the balance ofpayments
deficit asaproportion ofGDP rosesharplyto 12percent. Inflation, alreadyon an up¬
ward trend, continuedto acceleratebeforepeaking at almost 17 per cent in 1976. The
increasingly restrictive policy stance adopted since end-1975 and the virtual stagna¬
tion ofactivity between 1974 and 1978 have been accompanied by a reduction ofthe
imbalances that had developed. But the fact that the current external deficit may still
amount to 5 per cent ofGDP in 1978 and that inflation in the year toJune was 12Vi
per cent, suggests that an important adjustment problem remains. However, around
the middle of 1977 the economy entered a sharp downturn which was characterised
for the first time by a marked increase in unemployment, and since then policy has
been moved to a strongly expansionary stance.
Thereason forthesharpdownturnin 1977 canbetracedlargelytothetightening
ofpolicy. The stanceoffiscal policyhadtightenedcontinuously fromwhenthebudget
deficit as apercentageofGDP hadbeen9 percentin 1975/76 toonewherethedeficit
was budgeted to be 2.6 per cent in 1977/78. However, the restrictiveness offiscal
policy which had been exerted for about eighteen months, is not sufficient to explain
why the downturn was as sharp as it was. A number of other factors were also at
work. Monetary policy for the first time moved to a non-accommodating position,
althoughlargely as areflectionofthefiscalposition. In addition,thestock cycle seems
to have been in a position where firms were carrying more than adequate stocksjust
before the downturn began. Similarly, there may have been an element of labour
hoarding during the period since 1974 as the magnitude ofthe adjustment problem
and its implications for economic activity were under-estimated. Finally,theweakness
in the domestic economy also coincided with a sharp fall in farm income. Following
the change in the policy stance and the turnaround in stockbuilding, the level of
activity seems to havepicked up in 1978 though both the rate ofinflation and the ex¬
ternal deficit are still improving in lagged response to the earlier tightness.
The economy still has a considerable way to go in overcoming its medium-term
adjustmentproblem. Theexternal disequilibriumwhich emerged in 1974 resultedboth
from the domestic boom and the large fall in theterms oftrade. The improvement in
the external deficit to date has largely resulted from the decline in activity and it is
probable that if reasonable growth was resumed the full extent of the external dis¬
equilibrium would again become apparent. Traditional pastoral exports during the
1970s havegrown slowerthan previoustrends and sincemid-1977 non-traditional ex¬
ports have declined. Profitability in the farm sector has undergone a marked squeeze
andjudging fromtherecentweak performanceofnon-traditional exports,profitability
within this sector may also have declined.
ThefirstPart ofthisSurvey covers developments overthepasteighteen months,
concentrating on thedownturninthesecondhalfof1977 andtheincipientrecovery of
1978. Part II gives an account of fiscal, monetary and wages policy during this
OECD Economic Surveys
particularly activeperiod foreconomicpolicyandpresentstheshort-termoutlook. An
assessment both of the progress ofexternal adjustment so far and the policy options
for the future is given in part III. It is concluded that the problem is an essentially
dynamic one andthat any solution thatdoesnot overcometheprogressive squeezeon
export profitability will not be sustainable. The Survey concludes with an assessment
of present policy and some further suggestions on the mix ofpolicies that might be
best suited to overcoming the medium-term adjustment problem.
I RECENT DEVELOPMENTS
Demand and output
After two years ofgenerally weak activity during which real GDP as officially
estimated showed small positive growth, real output fell by 2.1 per cent in the
financial year 1977/781, with the decline concentrated in the second halfofthe year2.
While most components of final demand started falling earlier, the decline was
accentuated in the second half as firms attempted to shed stocks which had built up
excessively. The major contributions to the decline in activity came from private con¬
sumption and investmentwith governmentexpenditure, stockbuilding and the foreign
balance all making positive contributions to growth on an annual basis.
Real household disposable income is estimated to have fallen by as much as 6Vi
per cent in 1977/78 after a marginal increase in the previous year. Private consump¬
tion, in turn, is estimated to havefallen by 6 per cent implying a reduction in the sav¬
ing ratio from 8.2 per cent in 1976/77 to an estimated 7.9 per cent in 1977/78. The
volume ofretail sales, which has been on a downward trend sincethethird quarter of
1974 fell sharply from the second quarter of 1977: in the year to the fourth quarter,
the decline was 9.7 per cent. This was followed by a seasonally adjusted increase of
1.9 per cent in the first quarter of 1978, reflecting the effects of the stimulatory
package ofOctober 1977 and the re-introduction offree wage-bargaining. Although
this increase was partly reversed in the second quarter, strong growth in the third
quarter suggests thatthepick-upis continuing. The fall during 1977 wasconcentrated
among durable goods' sales as was the subsequent recovery, the increase in this
category in the six months to June 1978 being 6.4 per cent in volume terms.
Indicators ofprivateinvestmentdemand show a continuing weakening across all
sectors. The volume of investment in residential construction, as indicated by new
dwellingpermits fell through 1977 andintothefirstquarterof1978. For 1977/78 as a
whole the decline amounted to 30.2 per cent. In addition to factors such as the cost
and availability offunds, longer-term issues such as the reversal ofinward-migration
flows are probably having an important effect. Investment in total building, judged
from thevolumeofpermits, declined by 18.7 per cent in 1977/78 as awhole. Imports
1 The financial year in New Zealand runs from 1st April to 31st March.
2 Interpretation ofmovements in activity inNewZealand arehamperedbythelack ofquarterly
national accounts or even annual accounts in real termsby components ofexpenditure. In theprevious
OECD Survey of New Zealand proxy quarterly series were used, similar to the Reserve Bank's
"Aggregate Expenditure Series". Owing to the widening divergence between the proxy series and the
official series(generallystronger),theformerhavenowbeenreplacedbythelatterforthepurposesofthis
Survey. Nevertheless, itis still apparentthatpartialindicators oftheeconomy (e.g. Diagram 1)tendto
show a weaker development over the past three or four years than do the national accounts.
NewZealand
Diagram 1 Recent economic indicators
tnd.,197404= 100 'ncfex197404= TOO
105 Durabless.a. 105
100 (cid:9) "^ 100
^*.^_-"""~'~-» Non-durables s.a.
Totalretail V 95
salessj.
V
90 90
85 85
$millier, %million
Totalbuildingpermits' 120
(rightscale)
100
40
fnrf..041974= 700
100
90
80
70
60
\ A
50 - 50
V Realimportsoftransportequipment
40 - 40
30L _| 30
i il in iv i n in iv i ii in iv i ii in iv i ii in iv
1974 1975 1976 1977 1978
1 Value ofpermits deflated by Building Industry Advisory Council Cost Index.
2 Deflated by import price index.
Sources: Monthly Abstract ofStatistics. New Zealand Treasury.
OECD Economic Surveys
Table 1 Expenditure and output
Percentage volume change from previous year
FY 1976/77
$ million
1975/76 1976/77 1977/78"
Expenditure components1
Private consumption 7700 0.0 -0.5 -6.0
Government consumption 2299 5.5 1.0 3.0
Gross fixed investment:
Private 2 159 -2.0 -4.5 -8.5
Public 994 4.0 -12.0 -1.5
Stockbuilding 516 -5.52 -0.12 1.12
Exports of goods and services 3713 2.7 1.0 1.2
Imports of goods and services 4 192 -17.5 1.2 -3.5
Foreign balance -449 6.73 -2.13 1.43
GDP at market prices 13 189 1.7 0.1 -2.1
Weight
FY 1965/66
Sectors
Agriculture 15.0 6.3 -1.9 4.0
Other primary sector 1.5 -3.8 22.4 -5.0
Manufacturing 21.7 0.2 2.4 -7.0
Construction and public utilities 9.9 6.8 -7.7 -3.3
Services 51.9 0.4 -0.1 -1.8
GDP at factor cost 100.0 1.7 0.1 -2.1
1 Treasury estimates.
2 ChangeinstockbuildingasapercentorGDPinthepreviousyear.
3 ChangeinforeignbalanceasapercentofGDPinthepreviousyear.
Sources: National Accounts, and Monthly Abstract ofStatistics.
of machinery and transport equipment, a useful indicator ofthis category ofinvest¬
ment also fell sharply from the second halfof 1977 (Diagram 1). However, the value
of forward orders for imports of machinery and transport equipment showed a
marked increase in the 1978 June quarter.
Following a substantial build-up ofstocks in thefirst halfof 1977, a downward
adjustment occurred during the second half and in early 1978. Although stocks to
sales ratios did not fall until the first quarter of 1978, the volume of stocks was
probably reduced from the second halfof1977. The declinein manufacturing output,
which began in the second quarter of 1977, suggests that some attempt to reduce
stocks was made well beforethe stocks to salesratio fell. An important motive forthe
stimulatory package introducedin October 1977 was thefearthat amajordownward
stock adjustment was imminent. The package contained specialfinancial measures to
ease the burden of stockholding and no doubt delayed the decumulation somewhat.
Between thefirst two quarters of 1978, the stocks to sales ratios ofboth retailers and
wholesalers were reduced, from 69.1 to 65.3 in the case ofthe former and from 72.6
to 64.5 in the case of the latter.
Public sector investmentis officiallyestimatedtohavedeclinedby lVi percentin
1977/78 despite the small increases allowed for in the October 1977 measures.
Following a year offiscal austerity in 1976/77 when government consumption was
almost flat in volume, there was some easing towards the end ofthe year in this com¬
ponent ofexpenditure ^or 1977/78 as a whole, thevolume ofgovernment consump¬
tion is estimated to have risen by about 3 per cent.