Oecd Economic Surveys : New Zealand 1979-1980.

71 Pages·4.694 MB·English

by  OECD

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
ORGANISATION DE COOPERATION ET OE DEVELOPPEMENT ECONOMIQUES
BASIC STATISTICS OF NEW ZEALAND
THE LAND
Area (1 00(1 sq. km) 268.7 Urban population', % oftotal
Agricultural area (% of total) 64.6 (23.3.76 census) 68
Grassland (% of total) 48.7 Population ofmajorcitiesand
urban areas (23.3.76census):
Urban
City
area
Christchurch 172.0 295.3
Auckland 150.7 742.8
Wellington 139.6 327.4
THE PEOPLE
Population. 31.12.78 (1000) 3 151.4 Civilianemployment, April 1978
No. of inhabitants par sq. km 11.7 (1000) 1220.4
Net rate of increase per 1000 of which: Agriculture 141.5
inhabitants (average 1977-78): Manufacturing 309.7
Natural increase 8.7 Trade (wholesale
Net migration and retail) 193.7
PARLIAMENT AND GOVERNMENT
Present composition of Parliament: National Party 51
Labour Party 41
Social Credit Party 0
Present Government: National Party
Next general election: atlatest by November 1981
PRODUCTION2
Gross National Product, 1977-78 GNP per capita, 1977-78 ($ NZ) 4760
(S NZ million) 14979
FOREIGN TRADE (1978)3
Main exports (percentage oftotal): Main imports (percentageof total):
Meat and meat preparations 26.9 Machinery and transport equipment 32.0
Wool 16.8 Mineral fuels, lubricants, etc. 14.2
Dairy products 11.9 Chemicals 12.7
THE CURRENCY
Monetary unit: NewZealand dollar Currency unit per US dollar,
average ofdaily figures:
Year 1979 0.9783
January 1980 1.0132
1 Defined as the population in the 24 statistical urban areas plus all towns etc. with
populationexceeding 1000.
2 Fiscal yearbeginning 1st April.
3 Yearbeginning 1st July.
Note An international comparison of certain basic statistics is given in an annex table.
OECD ECONOMIC SURVEYS
NEW ZEALAND
MARCH 1980
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
The Organisation Tor Economic Co-operation and Development
(OECD) was set up under a Convention signed in Paris on 14th
December 1960, which providesthat the OECD shall promote policies
designed:
to achievethe highestsustainableeconomicgrowthandemploy¬
ment and a rising standardoflivinginMembercountries, while
maintainingfinancialstability,andthustocontributetothedevel¬
opment ofthe world economy;
tocontributetosoundeconomicexpansioninMemberaswellas
non-membercountriesin the processofeconomicdevelopment;
to contribute to the expansion ofworld tradeon 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.
TheSocialistFederalRepublicofYugoslaviaisassociatedincertain
work oftheOECD,particularlythatoftheEconomicandDevelopment
Review Committee.
The annual review ofNewZealand
by the OECD Economic andDevelopmentReview Committee
tookplace on 14th February 1980
©OECD, 1980
Queriesconcerningpermissionsortranslationrightsshouldbeaddressed
to:
Director ofInformation, OECD
2, rue André-Pascal, 75775 PARIS CEDEX 16, France.
CONTENTS
Introduction 5
I Recent trends 5
Demand and output 5
The labour market 10
Incomes, exists and prices 11
The balance ofpayments 14
II Costs, prices and international competitiveness in the medium term 19
The course ofinflation, 1967 to 1979 20
Structural change 23
Wage and price relationships 25
Medium term issues 26
III Energy developments 27
IV Economic policies 29
Fiscal policy 30
Monetary policy 33
External policy 35
Wage and price policy 36
V Short term prospects and conclusions 37
Shortterm prospects 37
Conclusions 40
Annexes
I Chronology ofwage and price measures, 1967-1979 43
II Wage and price relationships 48
III Calendar ofmain economic events 52
Statistical annex 58
TABLES
Text
1 The components ofexpenditure 6
2 Components ofchange in the labour force 11
3 Household incomes and savings 13
4 Recent movements in costs and prices 14
5 The balance ofpayments 17
6 Summary comparison: the 1960s and 1970s 20
7 Trends in relative prices, 1968 to 1979 23
OECD Economic Surveys
8 Income shares and movements, 1967/68 to 1978/79 24
9 Pattern ofenergy demand, 1978 29
10 Summary ofbudget transactions 31
1 1 Government financing transactions 32
12 Formation ofmoney and credit 33
13 Short term prospects 38
Statistical annex
A Gross domestic product 58
B Gross domestic product by sector 59
C Labour market 59
D Prices 60
E Money supply and selected liquid asset holdings ofpublic 60
F General government revenue and expenditure 61
G Balance ofpayments 62
H Imports: value, volume, prices and commodity group 63
I Imports by country oforigin 63
J Exports: value, volume, prices and commodity group 64
K Exports by country ofdestination 64
DIAGRAMS
Text
1 Componentsofrealexpenditure: ReserveBankseries 7
2 Investmentandstocks 9
3 Unemployment 12
4 Importvolumesandexportprices 15
5 Overseasexchangetransactions 18
6 Externalprices, 1967 to 1969 21
7 Wagesandprices, 1967to 1979 22
8 Oilpricesandenergysupply 28
9 Interestrates 34
10 Monetaryindicators 35
Annex II
A Earnings simulation 49
B Wholesale prices 50
INTRODUCTION
TheNew Zealand economyhasbeenadjustingtotheconsiderableswing in demand
managementasthestrongexpansionin 1978 was reversed in 1979 andtotheeffectsofa
substantial improvementin the termsoftrade from mid-1978. Thepublic sector deficit
rose from 4V, per cent ofGDPin 1977/78 to 8 per cent in 19.78/79 and has since been
broughtback to 6 percent for the 1979/80 financial year. Both the money supply and
domestic credit increased by 25 per cent in the year to March 1979 but have now been
broughtunder much tightercontrol. Theterms oftradeincreased by 13 percentin the
year to June 1979, but have since declined slightly. By far the greater part of this
expansionofpersonal incomesand credit ultimatelyfound its outletin alargeincrease in
imports, a substantial increase in the rate of inflation and a short boom in consumers'
expenditure accompanied by a cycle in stockbuilding. During the course of 1980 a
number ofthese elements should settle down. Slow growth in demand, together with
somesmall rundown ofstocks, shouldleadtosubstantially slowergrowthin the volume
ofimports. Although for 1980asawholetotaloutputmayshow noincreaseover 1979,
by theendoftheyeartheGDP isexpectedtobegrowingatan annual rateofaround 1 %
percentperannum. However, asfarastheexternalaccountisconcerned,thereislikely
tobeasignificantfallinthetermsoftradewhich will offsetthelowerdemandforimports
so that the current balance is unlikely to improve. Together with an inflation rate of
about 16per cent, the external deficit remains a considerable constraint on growth.
A numberofimportantstepsweretaken in 1979 tofacilitatetheprocessofmedium-
term adjustment and structural change. These included the removal ofpricecontrols, a
5 per cent devaluation of the exchange rate and the switch in the management ofthe
exchange rate to maintain international competitiveness through frequent small
adjustments. These measures will help ensure that the improved profitability in the
export sector is not eroded, but longer-term problems of factor income shares and
disequilibriuminthebalanceofpaymentsremain. Accordingly, therearestillimportant
barriers to be overcome in order to achieve sustained non-inflationary growth in the
medium term.
PartI of this Survey reviews short-term trends in the economy over the last two
years, giving particular attention to the expansion through 1978 and the adjustments
which have taken place in 1979. Thecourse ofwages and prices since 1968, with the
purposeofassessingtheirimpacton thecompetitivenessoftheeconomyandits medium-
termrateofgrowth, isdiscussedin PartII. PartIII brieflydescribestherecentpatternof
energy useandthedevelopmentofnaturalgas resourceswhile PartIVprovidesa review
of recent economic policies. The Survey concludes with a discussion of short-term
prospects and the main policy issues.
I RECENT TRENDS
Demandandoutput
The pattern ofdomestic economy activity over the past three years has been very
uneven;asharprecessionaryphasewhichgainedmomentumthrough 1977 wasfollowed
by an equallysharp recovery through 1978 and then a further apparent downturn in the
OECD Economic Surveys
first halfof 19791. These developments have been unusual not only for their volatility
butalsobecause, unlikepreviouscycleswhichhaveoriginatedprimarilyfromsharpshifts
in the terms oftrade, they were, for the most part, domestically generated. The main
impetustodemandin 1978 camefromincreasedgeneralgovernmentconsumption which
in nominal termsgrew by 23 percentin theyearending March 1979, indicating volume
growth of about 6 % per cent or considerably more than in the previous fiscal year
(Table 1). Private consumption expenditure(volume) grew by 1 per centin 1978/79, a
considerable turnaround from the decline in 1977/78. However, gross fixed capital
expenditure continued to fall, although at a much reduced rate. Stockbuilding made a
negative contribution to thegrowth ofreal GDP. In aggregate, it is estimated thattotal
domestic demand fell by about 1 Xper centfollowing a large decline in 1977/782. The
change in the foreign balance contributed almost 1 per cent to real GDP which fell
by just over %per cent. The development ofaggregate demand in 1979/80 is highly
uncertain but estimates based on a small number ofpartial indicators suggest that real
GDPmayhavefallenbyabout 1 percent(Table 1),themainchangesfrom 1978/79 being
in government consumption, private investment, stockbuilding and imports.
Thegrowthofprivateconsumptionappearstohavebeen concentratedinthesecond
halfof1978 whenthevolumeofretailsales(seasonallyadjusted)grewatanannualrateof
8 "4 per cent after a first halfdecline of%per cent. In the first halfof 1979, the rate of
Table 1 The components of expenditure1
Fiscal years ending March
Percentagevolume change
1977/78 from previousyear
$ million 1976/77 1977/78 1978/79 1979/80
Private consumption 9392 0.3 -1.7 1.1 1
Government consumption 2 339 0.7 4.7 6.6 i
Private investment 2017 -1.6 -24.2 -4.9 0
Public investment 1376 -17.8 -3.7 -5.3 -51
Final domestic demand 15 124 -1.8 -4.5 0.7 i
Stockbuilding1 571 2.0 -1.4 -1.9 i
Total domestic demand 15695 0.1 -5.6 -1.2 1
Exports of goods and services 4 194 8.8 1.7 2.1 2
Imports of goods and services 4467 1.3 -1.5 -1.1 8
Foreign balance1 -273 1.6 0.9 0.9 -2
GDP (expenditure estimate) 15422 1.7 -5.0 -0.3 -1
Statistical discrepancy1 -105 -1.6 2.4 n.a. n.a.
GDP (output estimate) 15316 0.1 -2.7 n.a. n.a.
1 ContributiontochangesinGDP.
2 The volume figures shown above have been prepared by the Secretariat by deflation of the official,
current-price, National Accounts for the fiscal yean 1975/76 to 1978/79. Figures for 1979/80 are Secretariat
estimates. For 1976/77 and 1977/78 comparable movements in real GDP are available from the official
indexes of real net output by industry. However, as the statistical discrepancy shows, there are significant
divergences betweenthis outputmeasureofGDPandtheexpenditureestimatesderivedabove.
Sources: National Accounts, Reserve Bank series, Monthly Abstract o) Statistics and Secretariat estimates.
1 A new national accountingframework,theNewZealandSystemofNational Accounts(NZSNA),has
recently been adopted in New Zealand following the United Nations 1968 System ofNational Accountsand
bringingtheNewZealandsystemintolinewiththoseofsimilarmarketeconomies. However,atpresentthese
accountsremainparticularlyinadequateinportrayingthedevelopmentsofthepasttwoorthreeyearssincethey
appearinannual,currentpriceformonlyand,asyet,arenotavailableeveninthatlimitedformbeyondthefiscal
yearendingMarch 1978. Forthisreason,thedescriptionofrecenttrendsreliesheavilyonpartialindicatorsof
activity and the Reserve Bank's quarterly aggregate expenditure series in determining both the timing and
magnitudeofrecentcycles.
2 TheseareSecretariatestimates. ThedeflationhasbeenundertakenbytheSecretariatintheabsenceof
any official deflators. They differ considerably from the official GDP estimates derived from volume of
productiondata whichindicateanoutcomeof -2.7percentin 1977/78.
NewZealand
Diagram1 Compoacatiofreal expendkare: ReserveBank series
Percentagechangebetween adjacent half-yearsSeasonally adjusted annual rates
IS 30
PRIVATE COHSUMPT GOVERNMENT EXPENDITURE
10 - -I 20
5 - - 10
0 - - 0
-5 - - -10
10 - -20
15 _ J -30
30 i-
FIXED «VESTMENT CHANGE IN STOCKS'
20 -
10 -
5
0 -
-10 0
-20 -
-5
-30 -
-n !_ J -10
25
EXPORTS IMPORTS
20 30
15 20
10
10
5
0
0 »
-5 - -10
-10 -20
-is L I I I I I I I I I I
15 ' 15
AGGREGATE REAL TOTAL DOMESTIC DEMAND
10 10
5
5
0
0
-5
-5
-10
-10 -15
-15 -20
-20 L
I II III IV I II III IV II III IV I II I II III IV I II III IV I II III IV I II
1379
1 Contribution to change in real aggregate expenditure.
Sources: ReserveBank quarterly expenditure series; Secretariat seasonal adjustment.
OECD Economic Surveys
increase slowed down to %per cent and fell sharply in the third quarter. The main
factors behind this pattern were:
/) The declining rate of inflation; consumer prices rose by 10per cent through
1978 compared with 15 % per cent through 1977.
//') Personal incomes taxes were reduced in April and October 1978.
Hi) National superannuation payments rose by about 19 per cent in August 1978
reflecting both the increase in the average ordinary time wage for the six
months to April 1978 and themovementofgrosssuperannuation payments to
80 per cent (rather than the earlier 70per cent) ofthe average ordinary-time
wage.
iv) There was a substantial rise in farm personal income following increases in
meat and wool prices. This was concentrated mostly in the December 1978
and March 1979 quarters.
v) Surveyedearnings, inclusiveofovertime, rose by 16 percentin nominal terms
overtheyearto March 1979. Mostofthisgainalsooccurredinthelatterpart
of 1978 and, at least in the case of the public service, substantial lump-sum
back-payments were involved.
vi) Therehas been ageneral tendencytowardsconcentration ofincomereceiptsin
thesecond halfofeach year. Overthe last few years, theprivatesector wage
negotiation round, public service general wage adjustments, and personal
income tax cuts have all tended to center on the September and December
quarters.
The net effects ofthese factors was an increase in real personal disposable incomeof9 %
per cent. A substantial rise in the saving ratio to 15 per cent between 1977/78 and
1978/79,as well as stemming from the uneven pattern ofincomes, also partly offset its
influence on demand.
Reflectingtheslow growth ofoutput, demographicchangesand outward migration,
all componentsofinvestmenthavebeen depressedforaconsiderabletime. Buildingand
construction has been particularly weak since about the middle of 1974 with an almost
consistent downward trend in both the number of building permits issued and real
expenditureon dwellings and other buildings. Investmentin dwellingsin 1978 appears
to have fallen by almost 30 per cent in volume to a level only slightly more than halfits
peak of 19743 (Diagram2). The "other building" category shows a similar, if less
extreme,profile(-20 percentto62 percentofits 1974 level). Inbothcases,thepattern
through 1978, on a seasonally adjusted basis, was quite flat and although the number of
permits issued for dwelling units in theyearto March 1979 at 19,050* was 10% percent
lowerthanthepreviousyear,thereweresignsofaslightrecovery inthemiddlequarterof
1979. Other investment components also showed a small upturn at the same time
suggestinga modestconsumption-led recovery. However, in thetwelvemonthstoJune
1979 thevolumeofimportsofcapitalgoods(e.g.commercialvehicles)declined. Imports
of fertilisers rose strongly, consistent with the improvement in farm incomes and
investment. Forward orders for fertilisers have been relatively buoyant. Public sector
capitalexpenditureisestimatedtohavedeclinedbyabout5 percentinvolumein 1978/79
following a decline of2 per cent in the previous fiscal year.
Therundown ofagriculturalstocks,particularlymeatandwool, which accompanied
the improvement in market conditions for these products were the main factors
accounting for the stock adjustment. In the non-agricultural sector the movement of
stocks has been characterised by a rundown ofstocks in the first halfof 1978, increasing
stockbuildinginthesecondhalfreachingapeakinthefirsthalfof1979 asmanufacturers,
retailersand wholesalers attemptedtorestorestock levelswhich havebeen eroded bythe
3 Reserve BankofNewZealand data.
4 Thiscompareswiththepeakof39734 intheyearendedMarch 1974andanannualaverageofabout
28000overthepastdecade.