Economy Recovers but National Saving Falls
Provisional National Accounts: Year ended March 2000
Economy Recovers but National Saving
Falls in March Year The New Zealand economy recovered in the year ended March 2000, Statistics New Zealand's latest Provisional National Accounts show. The recovery comes after the Asian economic downturn and two successive seasons of drought brought a halt to economic growth in the previous year. Gross Domestic Product (GDP) rose by 4.2 per cent in real terms and by 4.6 per cent in current prices. However, increased net investment flows abroad contributed to national saving falling for the fourth successive year.
The two key components of national income, employment income and business profits (operating surplus) both recorded stronger growth than in 1999, with the strongest lift occurring for the latter, up 6.2 per cent. However, much of the increase in profits was earned by foreign investors. As a result, net investment flows out of New Zealand were up $1.6 billion or 32.7 per cent, which coupled with larger increases in both private and government spending, led to a fall in national saving of $737 million. As a percentage of national disposable income, saving was 1.4 per cent, well below the last decade's peak of 4.9 per cent in 1994.
Compensation of employees increased 3.2 per cent in the year ended March 2000. This followed modest growth of 0.8 per cent in 1999, which was the smallest rate of growth since 1992. The lift in the latest year resulted largely from an increase in employment, up 1.7 per cent, and a rise in average hourly earnings, up 2.2 per cent.
When provision for depreciation is deducted the operating surplus of businesses grew 7.4 per cent, following a 1.9 per cent rise in 1999. The latest increase was largely export-led with agriculture, forestry and manufacturing industries being the major contributors.
Household spending increased by 3.6 per cent in 2000, following an increase of 3.5 per cent the previous year. The increase was most noticeable in purchases of durables such as furniture, appliances and motor vehicles. Purchases of vehicles increased by 6.3 per cent for the year to March 2000.
Growth in the volume of household consumption peaked in the second half of the 1999 calendar year, assisted by low interest rates, high levels of lending to consumers, and, reportedly, Y2K precautionary spending and millennium celebrations.
Current spending by central government rose 7.0 per cent in the March 2000 year, boosted by the purchase of the frigate Te Mana. Excluding this purchase, the increase was only 3.2 per cent. Both education and health have contributed to increased spending in the latest year. In the case of education, the settlement of the teachers collective employment contract and policy initiatives such as those for special education contributed to the increased spending. In the area of health, extra resources were allocated to cope with demographic factors and to reduce waiting lists for elective surgery.
Capital investment picked up in the year to March 2000 after being relatively static over the previous two years. The lift has principally resulted from increased spending on housing. Business investment expenditure, on the other hand, recorded almost no change, although when changes in prices are removed the volume of investment increased. However, with trade in goods and services in the latest year recording a deficit for the first time since 1987 and the level of national saving falling for a fourth successive year, New Zealand has had to continue to rely on international finance to fund its investment. As a result net external borrowing has reached a new high. Net borrowing from the rest of the world rose by almost $3 billion to $7,744 million and is now 7.3 per cent of GDP.
The New Zealand System of National Accounts is now based on a revised international standard (System of National Accounts 1993). The tables in the companion Hot Off The Press are presented on this basis. A second Hot Off The Press released in conjunction with the Provisional National Accounts entitled Upgraded National Accounts explains these changes. Brian Pink