Friday graph: the story of an unbalanced economy

This is a chart from a talk by Secretary to the Treasury John Whitehead last week.

It pinpoints a major economic weakness – the fact that the tradable sector of the economy (industries that export or compete with imports) has been largely stagnant over the past decade, while the non-tradable sector, of which the public sector is a large part, expanded.

One outcome is the large current account deficits prior to the GFC.  In the previous decade the growth of the two sectors was much more balanced.

Former finance minister Michael Cullen wrongly interpreted the external deficits as a savings deficiency on the part of New Zealanders.  A more important factor was the loss of international competitiveness as excessive government spending put pressure on interest rates and the exchange rate.

Reining in government spending is the single most important action the government can take to improve international competitiveness and export sector profitability and growth.

As John Whitehead warned, we are not as yet seeing the significant rebalancing needed in the economy – the shift of resources to tradables.

Click to enlarge

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3 thoughts on “Friday graph: the story of an unbalanced economy

  1. The Cullen view of the savings deficit so called is simply our favourite game.If there are choices to be made we will take the soft option. For Government to reduce its wealth consumption hard decisions affecting its services would impact on staff/voters and it is so much easier to promise steady as she goes policies , encourage private savings, that must eventually be nationalised and taken in again to the vortex of consumption that is the basis of staying in power. When Politics v’s Economics ,politics always wins. Our own Virtual Central bank caused the economy to implode long before the GFC and any recovery will be at the mercy of the interest rate lever.Instead of finding incentives to save capital only to have it stolen away later government must get out of the way and out of wealth destruction for they bring nothing to the table but take all they can away. PM key doesn’t want to see riots in the street and I suggest he puts high walls around his Palazzio because they are coming anyway.

  2. Pingback: TVHE » A question to all

  3. Yep, that chart just about sums up all the problems of the NZ economy… the tradeables sector has in effect gone nowhere since 2002.

    The Cullen myth of savings is just that and is based on ‘experimental’ data from the Dept of Stats – is unbelievable that some much Govr policy (KiwiSaver, Cullen Fund) could be predicated on such a flimsy data set. Thanks for coming Dr Cullen.

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