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Annual National Accounts Show Increased Saving

National Accounts: Year ended March 2001

Annual National Accounts Show Increased Saving

Statistics New Zealand today released the annual national accounts for the year ended March 2001. Unlike the regularly published quarterly gross domestic product (GDP) series, these statistics make no adjustments for the effects of price changes. The annual accounts recorded growth of 6.3 per cent for the year ended March 2001; however when the effects of inflation are removed, there was an increase of 2.6 per cent in constant price GDP. The 6.3 per cent increase was largely driven by a significant lift in export receipts, up 23.9 per cent, as exporters gained from both improving commodity prices and the depreciation of the New Zealand dollar.

The real strength of the annual accounts is the added information they provide on sources of income, spending patterns and national saving. The two key components of national income, compensation of employees and business profits, both recorded strong growth. Compensation of employees was up 5.2 per cent and business profits up 8.5 per cent. Although net investment flows out of New Zealand were up $1.1 billion (up 17.1 per cent), national disposable income, which measures the income available to New Zealand residents for current consumption or saving, still rose 5.3 per cent. Final consumption expenditure (private and Government) was up 3.5 per cent, resulting in national saving recording an increase, up from $0.7 billion to $2.3 billion. As a percentage of national disposable income, saving was 2.6 per cent, up from the 0.8 per cent in 2000 but below the last decade's peak of 4.7 per cent in 1996.

Compensation of employees increased 5.2 per cent in the year ended March 2001. This follows growth of 3.0 per cent in 2000. The lift in the latest year's compensation resulted largely from an increase in employment, up 2.2 per cent, and a rise in average weekly earnings, up 2.2 per cent.

Gross operating surplus increased 7.9 per cent in the year ended March 2001. When provision for depreciation is deducted, net operating surplus grew 8.5 per cent, following 8.2 per cent in 2000. The latest increase was largely export-led with agriculture and manufacturing industries being the major contributors. Net operating surplus is an approximate measure of pre-tax business profits before the deduction of net interest payments.

There was a substantial improvement in the profitability of agriculture in the year to March 2001, with increased farmgate prices and higher levels of production. The self-employed income of farmers is estimated to have increased $1.6 billion or 59.1 per cent. Earnings from sheep, cattle and dairy products were major contributors to the improvement in farm profits, with higher overseas prices, increased volumes of production and favourable exchange rates all contributing.

Household consumption expenditure increased by 4.3 per cent for the year ending March 2001, following a similar increase in the previous year. This reflected relatively buoyant household incomes as a result of increased employment levels and higher earnings for both paid employees and the self-employed. Increased spending occurred across most commodities with the largest rise in services up 5.6 per cent. Vehicle operating costs were up 10.4 per cent, largely due to increased petrol prices. Other increases in spending were in restaurants and hotels, recreation and education services.

Households continue to spend more than they earn. Although household consumption expenditure increased by 4.3 per cent, the disposable income of households rose more, up 5.9 per cent, resulting in the level of household saving rising from -$3,147 million to -$2,363 million. The saving ratio rose from -5.1 per cent to -3.6 per cent during the March 2001 year.

Current spending by central government rose 0.3 per cent in the March 2001 year. However, this small rise is influenced by the purchase of the $631 million frigate Te Mana in the March 2000 year. Excluding this purchase, spending in the latest year increased 4.0 per cent. Both education and health spending were up. In the case of education, the settlement of the teachers' collective employment contract contributed to the increased spending. Health spending was up as a result of extra resources being allocated to cope with population growth and to extend health services, including additional surgery to reduce waiting lists.

The rise in export earnings resulted in a significant improvement in the external current account with the deficit reducing from $7.4 billion (7.0 per cent of GDP) to $5.4 billion (4.8 per cent of GDP). There was a complete turnaround in the balance of trade in goods and services, moving from a deficit of $1.3 billion to a surplus of $1.9 billion in the latest March year. After allowing for a further deterioration in net international investment income, net borrowing dropped from the record high in 2000. Net borrowing from the rest of the world fell from $7.8 billion to $5.6 billion.

Brian Pink Government Statistician END

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