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

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AGENDA

• 1. New Zealand’s current

course and speed Time

• 3. Future challenges

and opportunities

• 2. Near term challenges

and opportunities

3

50 60 70 80 90 100 110 120 130 140 150 1 9 7 1 9 7 5 1 9 8 1 9 8 5 1 9 9 1 9 9 5 2 2 5

NEW ZEALAND’S PROLONGED RELATIVE INCOME DECLINE WAS HALTED DURING THE 1990s

Real per Capita GDP (OECD average = 100) USA Australia Finland New Zealand Ireland

Source: OECD.

4

A LARGE INCOME GAP REMAINS BETWEEN NEW ZEALAND AND MOST OTHER OECD COUNTRIES

50 100 150 200 Luxembourg Norway United States Ireland Iceland Switzerland Netherlands Austria Australia Denmark Canada Belgium United Kingdom Sweden Finland Japan Germany France Greece Italy Spain New Zealand Korea Czech Rep Portugal Hungary Slovak Rep Poland Mexico Turkey GDP per capita (PPP) indexed to OECD average, 2005 OECD Average

Source: OECD.

High Income Low-Middle Income High-Middle Income Low Income

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Per capita income Labour Productivity Output per hour worked Labour Utilisation Total hours worked

x =

TO EXPLAIN NEW ZEALAND’S LOW INCOME LEVELS, WE NEED TO LOOK AT THE DRIVERS OF PER CAPITA INCOME

6

NEW ZEALANDERS ARE HARD WORKING BUT ARE NOT AS PRODUCTIVE AS WORKERS IN OTHER COUNTRIES

70 80 90 100 110 120 130 70 80 90 100 110 120 130 140 150 Output per hour worked, 2006 (OECD Average = 100) Hours worked per capita, 2006 (OECD Average = 100)

Source: Groningen Growth and Development Centre and the Conference Board, Total Economy Database, January 2007.

New Zealand

Greece Spain Japan Iceland Canada

Australia

Switzerland USA UK Sweden Finland Italy Denmark Austria Ireland Netherlands Germany Belgium France Luxembourg

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• 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

8

NEW ZEALAND’S BUSINESS INVESTMENT IS LOW

5% 10% 15% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

OECD Median* New Zealand Australia

Source: OECD. *Czech Rep, Luxembourg, Poland, Hungary, Portugal, Slovak Rep, and Turkey not included.

Business Investment as a % of GDP

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0% 100% 200% 300% Singapore Switzerland Iceland Luxembourg Canada UK USA Australia South Spain Japan Norway Greece Turkey Ireland Czech Rep Italy Austria Germany Slovak Rep Poland Mexico NewZealand Hungary

NEW ZEALAND’S CAPITAL MARKETS ARE SMALL

Source: IMF; Deutsche Bank; relevant national exchange for Iceland, Canada, Slovak Rep, and Czech Rep.

Market capitalisation of national exchange as a % of GDP, 2006

10

NEW ZEALAND’S R&D SPEND IS HALF OF THE OECD AVERAGE

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

Gross Expenditure on Research and Development (GERD) % of GDP, 2003

Note: 2003 or most recent year available. Source: OECD.

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NEW ZEALAND MAKES LITTLE INVESTMENT IN KNOWLEDGE 0% 2% 4% 6%

P

• r

t u g a l I r e l a n d N e w Z e a l a n d S p a i n U n i t e d K i n g d

• m

F r a n c e N e t h e r l a n d s A u s t r a l i a J a p a n O E C D D e n m a r k K

• r

e a F i n l a n d U n i t e d S t a t e s S w e d e n Higher education Software R&D

Investment in knowledge as a % of GDP, 2002

Source: OECD.

12

0% 20% 40% 60% 80% 100% S i n g a p

• r

e I r e l a n d S l

• v

a k R e p A u s t r i a S w i t z e r l a n d S w e d e n N

• r

w a y S

• u

t h K

• r

e a D e n m a r k O E C D C h i l e F i n l a n d C h i n a N e w Z e a l a n d S p a i n A u s t r a l i a U S A

142 168

2005 1990

NEW ZEALAND EXPORTS LESS THAN MOST DEVELOPED COUNTRIES

Source: OECD; national government statistics for Chile, China, and Singapore for 2005.

Exports as a % of GDP, 1990 and 2005

13

20 40 60 80 100 S i n g a p

• r

e S w e d e n F i n l a n d D e n m a r k F r a n c e S p a i n D e v e l

• p

e d C

• u

n t r i e s A u s t r a l i a A u s t r i a U S A N e w Z e a l a n d

NEW ZEALAND IS DISTINCTIVE IN HAVING A LOW AND REDUCING OUTWARD FDI STOCK

Outward FDI as a % of GDP

Source: UNCTAD.

1980 1990 2004

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• 3. FUTURE CHALLENGES AND OPPORTUNITIES

THE NEW ZEALAND OF THE FUTURE

Demographics

• Aging
• Ethnic mix

Technology

• Communications
• Processing
• New environments

Environmental Constraints

• Energy availability
• Weather patterns

Rise of Asia

• China and possibly India become

global leaders Globalisation and Agglomeration: International mobility

• f goods, capital,

people

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NEW ZEALAND HAS AN AGING POPULATION 10 20 30 40 50

1 9 9 1 1 9 9 6 2 1 2 6 2 1 1 2 1 6 2 2 1 2 2 6 2 3 1 2 3 6 2 4 1 2 4 6 2 5 1

Projected Median Age

Source: Statistics New Zealand.

Maori All New Zealanders Asian Pacific Island European

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NEW ZEALAND’S POPULATION MIX IS CHANGING 25 50 75 100

2001 2006 2011 2016

Auckland workforce by ethnic group

Source: Committee for Auckland.

Maori 11% Asian 23% Pacific Island 15% European 51% New Zealanders aged 15-64 2016 7% 13% 14% 66%

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THE IPCC PROJECTS AN INCREASE IN AVERAGE GLOBAL TEMPERATURES OF 1.8 TO 4.0 DEGREES CELSIUS BY 2100

Source: International Panel on Climate Change AR4 Summary.

Projected range of global temperature in 2100

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NEW ZEALAND’S ECONOMY IS EMISSION INTENSIVE

0.2 0.4 0.6 0.8 1

Australia Czech Poland New Zealand Slovak Canada Greece USA Hungary Finland Ireland Belgium Netherlands Luxembourg Germany Spain Portugal denmark UK Japan Iceland Italy Austria France Norway Sweden Switzerland

GHG emission intensity per unit of GDP, 2002

Note: Data not available for Turkey, Korea, or Mexico. GHG = Greenhouse Gases. Source: OECD.

OECD overall 0.6

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0% 20% 40% 60% 80% 100% 1500 1700 1820 1900 1960 2000

65% 67% 68% 56% 56% 59%

Western Europe USA Canada, Australia, New Zealand All other countries Rest of Asia India China

THE ECONOMIC RISE OF ASIA

Source: Angus Maddison, OECD.

Distribution of global GDP since 1500

Asia population as a %

• f global population

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MASSIVE GROWTH IN INTERNATIONAL FLOWS OF GOODS, SERVICES, AND CAPITAL

2,000 4,000 6,000 8,000 10,000 1980 1985 1990 1995 2000 2005

World stock of outward FDI, US$t

2,000 4,000 6,000 8,000 10,000 1980 1985 1990 1995 2000 2005

World exports, US$b

Source: UNCTAD; World Bank.

21

INCREASING INTERNATIONAL MOBILITY OF PEOPLE

Expatriates as a % of total population and highly skilled population

Source: OECD.

22

RAPID EVOLUTION OF THE INTERNET FROM 1995

0% 5% 10% 15% 20%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Internet Users as a % of world population, 1995-2006

Source: W3C.

451m people in 2000 1, 083m people in 2006

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IMPLICATIONS FOR NEW ZEALAND

The significance of many of the constraints facing New Zealand will increase

• ver 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

• vercome, 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

Preparing for the future: Emerging priorities for the New Zealand economy

David Skilling December 2007 www.nzinstitute.org