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