Savings Drop as Economy Slowed in March Year
The flow-on of the Asian economic downturn and a second season of drought conditions in much of New Zealand brought a halt to economic growth in the year ended March 1999. Gross Domestic Product (GDP) fell by 0.2 per cent in real terms, and rose 0.9 per cent in current prices. The annual National Accounts released today by Government Statistician Len Cook provide a comprehensive analysis of this change in economic growth and paints a picture of the general economic climate, demand for goods and services within the New Zealand economy, and how income is shared among sectors.
The two key components of national income, employment income and business profits, recorded little growth as the economy slowed. However, in spite of the sluggish growth in business profits, investment income remitted abroad increased. As a result, national disposable income, which measures all income earned by New Zealand residents, decreased 0.6 per cent. Furthermore with increases in both private and government spending, national savings fell to a level not recorded in New Zealand since the 1970s. As a percentage of national disposable income, savings at 2.6 per cent were the lowest recorded since the series began in 1962.
Compensation of employees was up by only 0.2 per cent in the year to March 1999. This follows an increase of 3.2 per cent in 1998 and reflects the flat growth in employment. Hours worked by wage and salary earners decreased for the March year. Increases in earnings also slowed. The Quarterly Employment Survey recorded a 2.9 per cent increase in average weekly earnings for the year to March, following a 3.3 per cent rise in 1998.
Operating surplus in 1999 increased by a modest 1.2 per cent, following a 3.3 per cent rise in 1998. Industries to record increased profitability in the latest year included the communications, distribution and finance industries. While 1999 was also a successful year for exporters of kiwifruit, dairy and fish products, it proved to be difficult for other export-oriented industries such as meat and wool production, forestry, and petroleum products manufacturing.
Household spending increased by 3.4 per cent in 1999, following an increase of 4.3 per cent the previous year. The increase was strongest for durables and services which both increased by 4.0 per cent. Purchases of used vehicles increased 18.1 per cent with reduced tariffs on imported vehicles enabling consumers to take advantage of low prices. Increased spending on durables has also been assisted by tax cuts in July 1998, low interest rates from October and possibly the cashing in by households of AMP shares.
In the year to March 1999, general government final consumption expenditure increased $370 million, up 2.5 per cent. Increased spending occurred in both local and central government. If the purchase of the frigate Te Kaha is excluded from the figures for 1998, central government expenditure for 1999 increased 6.9 per cent. The largest contributions to this rise occurred in education boosted by the pay parity settlement for primary teachers, and in health spending as part of the ongoing allocation of extra resources to reduce elective surgery waiting lists.
After recording no growth in 1994 and 1995, current spending by central government has increased by more than 21 per cent in the last four years. With business profits increasing only slightly, employment income flat and the provision of tax cuts government income tax revenue fell. Although this was offset by increased income from GST as household spending lifted, the overall result has been a significantly reduced government surplus. Nevertheless as in 1998, government was the major contributor to national savings.
While current spending by both households and government was up, investment was down. Total investment on fixed assets and stocks fell $1,870 million in the latest year. However, with the level of savings historically low, even this lower level of investment continued to be financed offshore.
Coupled with capital income brought in by migrants, now almost negligible, the result has been that New Zealand's level of international borrowing has risen from last year's record level to a new high. Net borrowing from the rest of the world climbed $1,015 million to $6,516 million and is now 6.6 per cent of GDP.