Good performance with room for improvement

Good performance with room for improvement

New Zealand’s performance against a broad range of economic indicators and the challenges that lie ahead are the key questions addressed in a joint publication released today by the Ministry of Economic Development and the Treasury.

Economic Development Indicators 2005, a follow up to the 2003 Growth and Innovation Framework Benchmark Indicators Report, shows that New Zealand’s economy has performed well over the last few years but there are challenges that need to be further considered in our policy work, Geoff Dangerfield, Chief Executive of the Ministry of Economic Development, and John Whitehead, Secretary to the Treasury, said.

On the positive side are sound economic foundations including macro economic stability, well regarded institutions and a regulatory environment generally supportive of business. The report also shows a relatively high level of entrepreneurial behaviour, improving skills levels, high rates of labour utilisation and signs of a recent improvement in business investment.

The key challenge is New Zealand’s relatively low levels of labour productivity. Underlying this are low levels of private sector research and development; skills shortages at management and employee level; relatively low levels of business investment particularly in new technologies; and a declining share of world trade.

The chief executives say these areas are priorities for action under the Growth and Innovation Framework.

The chief executives say good performance and resilience to economic shocks provide a solid platform for improving the living standards of New Zealanders and their quality of life in general.

Geoff Dangerfield says the report brings together indicators from a range of national and international sources to provide a comprehensive picture of the New Zealand economy.

“It allows us to monitor New Zealand’s performance in both high-level outcomes and in the factors which contribute to those outcomes,” he said.

Geoff Dangerfield and John Whitehead said that MED and Treasury have a shared interest in the performance of the economy, as evidenced by the joint production of the report.

Geoff Dangerfield stressed that MED’s five Strategic Priorities for Growth are aimed at strengthening the business environment and promoting innovation. Together, they address some key questions raised by the indicators, including those around improving our international connections, stimulating entrepreneurship and innovation in New Zealand firms, and improving the quality and reliability of key infrastructure services.

John Whitehead noted that economic growth is a key outcome for Treasury, which has been undertaking work aimed at identifying the key challenges for government policy if sustained higher economic growth is to be achieved. At the same time, Treasury is providing advice to the government on how to extract the maximum value from public spending and have a well-performing state sector, both of which are important for sustainable economic growth.

Geoff Dangerfield and John Whitehead say they hope the new publication will provide the basis for a sustained dialogue on how best to address the challenges it highlights and further improve New Zealand’s economic performance.

ends

Economic Development Indicators 2005 can be found at http://gif.med.govt.nz/aboutgif/indicators-2005/ from 2pm today.

Erratum: Figure 74, Product Market Regulation, 1998
There is an error in the printed publication. The labelling of the y-axis in Figure 74 on page 99 of the report is incorrect. The labelling should read:

“Rating (1 = least restrictive, 7 = most restrictive)”

The electronic version of the publication is correct.
ECONOMIC DEVELOPMENT INDICATORS 2005 – QUESTIONS AND ANSWERS

Overview

Why the focus on economic growth?

A key component of improving individuals’ overall welfare is increasing the wealth of the nation. Growth provides both individuals and governments with options on using the increased wealth. For individuals it means more expenditure and lifestyle choices, for governments it means more options in providing public services.

Of course there is more to overall welfare than material living standards, however without economic growth New Zealanders will not be able to achieve the improved quality of life to which they aspire.

The Results

What are the key findings?

The Report summarises the set of indicators in terms of both current standings (high, medium or low) and trends (improving, static, or deteriorating) relative to the OECD.

The high level outcome indicators

New Zealand’s GDP per capita growth has improved since the 1970s and 1980s, and over the last five years has been running above the OECD average. This higher growth, however, is more the result of increased labour utilisation (which is high and improving) than labour productivity growth (which remains low and static relative to the OECD).

The Report’s six underlying ”drivers” of productivity and growth

- Investment - medium and improving
- Innovation - low and improving
- Enterprise - high and static
- International Connections - medium and static
- Skills and Talent - medium and static
- Economic Foundations - high and static

So where does the future challenge lie?

The picture provided reinforces the need to improve our labour productivity. Areas where there appear to be the most potential to assist with this goal are in innovation, international connections, skills and talent and investment.

Factors that can support improvement in those areas include, private sector research and development and patenting activity, which remain low in New Zealand; skills shortages at management and employee level; relatively low levels of business investment, particularly in new technologies like ICT.

This does not mean that the areas with high rankings can be disregarded. It will be important to maintain the gains achieved in all areas, including economic foundations and enterprise.

What is the plan to address these challenges?

The Growth and Innovation Framework (GIF) is targeting the key areas of innovation, skills and international connections. This focus builds on the foundations of ongoing macroeconomic stability and fiscal strength for the long term.

These areas are being supported by work programmes in a number of areas: for example, working with employer and employee groups to improve workplace productivity and management capability, support for innovation and access to finance for firms; funding for industry training; and improving and streamlining regulation, for example through changes to the RMA process.

What is the point of the Indicators Report?

The Report collates a large amount of valuable information on New Zealand’s economic performance – both on high level outcomes like economic growth and on the underlying factors like innovation and investment that drive growth.

Its main purpose is to inform future economic policy and as part of that, provide a basis for engaging with New Zealanders over economic policy development. The indicators also provide a basis for assessing New Zealand’s performance over time and against other countries, highlighting our strengths and weaknesses and helping to evaluate the effectiveness of economic policy.

It’s about giving us the best possible information about New Zealand’s current position. In identifying where we’re doing well and where our challenges lie, these indicators help provide a sounder basis for decisions - at national, sectoral, regional and firm level - aimed at improving economic performance

Why is there such an emphasis on rankings and why use this set of countries?

The Government has set an objective of returning New Zealand to the top half of the OECD in per capita income. OECD rankings are the easiest way of tracking progress toward that goal, so in general, OECD countries have been used as the benchmark.

At times there are also comparisons with Australia, Denmark, UK and the US. This reflects our close connections with Australia and Denmark’s similar size and industrial structure. The UK is often used in reference to New Zealand and, while the US is a far larger economy, it is a leader in a number of the indicators used in the report.

The Report is structured on a Growth Accounting Framework – what is it?

The framework provides a way of breaking down the sources of economic growth into different components (for example, labour utilisation and labour productivity). It can help us to identify areas of focus for economic policy. When combined with ideas based on research and past experience, it provides a basis for helping to decide the best way in which policy can contribute to raising growth through raising labour participation and productivity.

Why use these indicators?

This report updates and expands the first GIF benchmark indicators report published in 2003. This year’s report incorporates a broader range of indicators to measure the drivers of growth and productivity. As the Growth and Innovation Framework (GIF) beds in, it’s appropriate to broaden the scope of the indicators.

This year the GIF themes of innovations, skills and talent and international connections have been joined by indicators for labour utilisation, quality of regulations, entrepreneurial activity and macroeconomic stability and performance.

Selection of the individual indicators was based on five key criteria: relevance, timeliness, comparability, reliability and completeness.

When is the next update on the indicators due?

Most of the individual indicators are updated periodically as more up-to-date data becomes available. Another collated set of the indicators is likely in two or three years once sufficient time has passed to allow a worthwhile assessment of overall progress.

ENDS

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