Address to ANZ Investment Luncheon, Singapore
Hon. Dr Michael Cullen
3 September 2003
Address to ANZ Investment Luncheon, Singapore
Thank you for coming here today. The main purpose of lunch today is for you to be able to ask me questions and so I will give you a brief overview of economic conditions in New Zealand and then throw things open for discussion.
The New Zealand economy is in good heart. It has been one of the best performing economies in the OECD in recent years. The headline numbers tell the story. The economy grew by 4.3 per cent in the year to March 2003. Employment has grown in each of the last twelve consecutive quarters, so we now have an unemployment rate of 4.7 per cent, which is very low by our recent historical experience and by OECD standards. To give you a benchmark, the unemployment rate was 7.2 per cent when this government took office at the end of 1999. Inflation is well under control. Consumer prices rose by a very modest 1.5 per cent in the year to June.
This strong performance has not be a result of any fiscal stimulus. We are running strong surpluses, and spending and debt are falling as a per cent of GDP. In the 1999 fiscal year spending in the core Crown sector was 33.8 per cent of GDP. In the current financial year it is expected to be 31.1 per cent. Gross debt was 36.1 per cent of GDP. This year it is forecast to fall to 25.7 per cent.
These amounts do not take account of the financial assets that are accumulating in the New Zealand Superannuation Fund: a fund that has been set up to help cover part of the pension costs associated with a transition to an older population structure. Those assets are expected to be close to 3 per cent of GDP by the end of the current financial year.
We do expect the economy to slow in the year to March 2004. It has hit a soft spot as a result of the combination of a number of temporary factors. Some of these are dry weather conditions that impacted on some parts of the agricultural sector and on electricity generation, the slowdown in tourism and export education that accompanied the SARS outbreak, weaker dairy product prices and of course continued uncertainty and sluggishness in the global economy.
Our best estimate is that these are in fact temporary, and current indicators are that they are abating. The net effect is that we expect growth to slow to around 2 per cent before picking up again in the 2005 financial year.
Whenever I come to meetings like this, I make two comments. One is that I am very relaxed about the performance and prospects of the New Zealand economy, compared with my more anxious counterparts in Finance Ministries in other countries. The other is that while our performance is good, we can and must do better.
New Zealand did slip behind developed world growth rates in the latter part of the last century, and if we do not regain some of that lost ground we will struggle to attract and retain skilled and productive workers who might otherwise prefer to take their chances in higher per capita income environments.
The government has therefore constructed a framework within which we can pursue higher sustainable growth through and emphasis on innovation.
This growth and innovation framework has three core elements.
Firstly, we want to strengthen the foundations that are the necessary conditions for successful economic performance in an uncertain and ever-changing world. This means we need sound government finances, a competitive economy, a cohesive society, a healthy and skilled population, sound environmental management, a strong research base and a globally connected economy.
I think that you will find that even on existing foundations, New Zealand is a very attractive inward investment destination. We have a very stable macroeconomic environment, clear and relatively light handed regulation, a foreign investment friendly inwards investment framework, a skilled, hard working and by international standards cost effective workforce and by no means least a safe domestic security climate.
We will build on that.
The second element of the framework is that we will build more effective innovation, through a mix of attracting and developing talent, creating new venture investment funds, making better linkages between tertiary institutions, industry and communities and by increasing global connectedness.
Finally, we are developing areas where our natural advantages and aptitudes give us scope to boost growth and innovation. These are biotechnology, information and communications technology and the creative industries. These sector level competencies have applications across a range of industries.
My message is that we are not resting on our laurels or leaving our fate to the whims of economic fortune. The trouble is that we, like you, face an uncertain future.
As we face an uncertain future, it is very important to take comfort in the fact that we have significant policy headroom and a range of policy options. This is not simply fiscal headroom. The monetary authorities have room in which to move. Our interest rates are relatively high compared with those in the rest of the developed world. Fiscally, there is scope to respond on both capital and operating fronts. If the economy does slow, we enter a slowdown with much more scope to absorb the labour market downside than we have had since the start of restructuring in the late 1980s.
Corporate, farm and household balance sheets are in a reasonably healthy state. We have taken steps to expand trade opportunities, to plug some of the gaps in the venture capital market, to upgrade our training programmes, to align immigration policy more closely with skill needs and to rebuild the infrastructure: all factors that will make it easier for New Zealand firms to find their way in troubled times.
We can approach the immediate future with a lot more confidence than many other OECD countries, and I think that you can look at New Zealand as offering sound and attractive investment opportunities in a number of spheres.
I am happy to take your questions.