OECD ECONOMIC SURVEY OF NEW ZEALAND 2022 Towards a Strong and Sustainable Recovery 1 February 2022 Wellington, New Zealand
https://www.oecd.org/economy/new-zealand-economic-snapshot/
Main messages • New Zealand’s economy bounced back from the COVID-19 shock but is now overheating. • House prices have soared, reducing affordability and increasing risks to financial stability. • Fiscal policy should be tightened to reduce the stabilisation burden on monetary policy. Further measures are needed to ensure fiscal sustainability. • Large increases in the carbon price and complementary policy measures are needed to reduce greenhouse gas emissions efficiently and equitably. • Better use of digital technologies would increase productivity, thereby helping to sustain high living standards.
2
The economic recovery was swift and is set to continue Real GDP since 2019Q4
Index, 2019Q4 = 100 110 105 100
NZL
95
AUS
90
USA
85 80
EU¹ 2020
Source: OECD Economic Outlook database.
2021
2022 3
The vaccination rate is above the OECD average The share of the total population fully vaccinated, 24 January or latest % 100 90 80 70
OECD Average
60 50 40 30 20 0
SVK POL SVN MEX COL TUR EST CZE HUN USA ISR CHE LUX LVA LTU GRC GBR CRI NLD NOR DEU AUT SWE FIN ITA FRA BEL NZL IRL ISL AUS CAN JPN DNK ESP KOR CHL PRT
10
Source: OECD calculations based on Our World in Data. 4
Intensive-care capacity needs to be boosted Number of intensive-care beds per 100 000 population, 2020 or latest year
Source: OECD (2020), Beyond Containment: Health systems responses to COVID 19 in the OECD.
5
Robust commodity prices have supported the recovery but tourism has been hit hard Index, Jan 2009=100 220
A. Export commodity prices and terms of trade Aggregate commodity prices (left) Real effective exchange rate¹ (right)
Index, Jan 2009=100 155
Terms of trade² (right)
200
B. Tourism receipts
NZD Million 18,000 16,000
145
14,000
180
135
160
125
12,000
140
115
10,000
120
105
8,000
100
95
6,000
80
2009
2011
2013
2015
2017
2019
2021
85
2009
2011
1. Real trade-weighted index from the RBNZ. 2. Terms of trade for goods are published on a quarterly basis and have been interpolated to get monthly values. Source: ANZ Bank ; Stats NZ ; RBNZ.
2013
2015
2017
2019
2021
4,000
6
Inflation has increased rapidly Contributions to inflation
% 7
Non-tradables
6
Tradables
Headline CPI
5 4 3 2 1 0 -1 -2
Source : Stats NZ.
2012
2014
2016
2018
2020 7
The labour market is very tight Unemployment rate
% 7
Net % of firms reporting Difficulty in finding labour increased difficulty 100 Unskilled Skilled 80
6
60
5
40
4
20 0
3
-20
Unemployment Natural rate of unemployment (NAIRU)
2
-40
1 0
-60 2007
2009
2011
2013
2015
2017
2019
Source : Stats NZ; OECD Economic Outlook Database; NZIER.
2021
-80
2007 2009
2011
2013
2015
2017
2019
2021 8
House prices have soared Index 2000 Q1 = 100 230
House price-to-income ratios AUS
210
NZL
OECD
190 170 150 130 110 90 70 50
2000
2005
Source: OECD Economic Outlook database.
2010
2015
2020 9
Low housing affordability is undermining wellbeing
60
C. Housing cost overburden among low-income earners and tenants Share of population in the bottom quintile of the income distribution spending more than 40% of disposable income on mortgage and rent, by tenure, 2019 or latest available Rent (private)
60
Owner with mortgage 50
40
40
30
30
20
20
10
10
0
0
LTU KOR JPN LVA CZE SVK DEU SVN MEX FRA IRL AUT AUS POL NLD BEL ITA PRT OECD CAN DNK NOR EST HUN SWE LUX GRC ISL CHE USA ESP FIN GBR CHL ISR NZL
50
Source: OECD Affordable Housing database. 10
Accommodative monetary policy increased high-risk mortgage lending High-risk shares of new mortgage lending by buyer type
% 25
First home buyers
Investors
Other owner-occupiers
% 25
DTI > 6, LVR > 80 20
20 DTI > 6, LVR > 70
15
15
10
10
5
5
0
2018
2020
2018
2020
2018
Note: Investors covers all lending to borrowers where at least one investment property secures the loan. Source: Reserve Bank of New Zealand (2021), Financial Stability Report, November 2021.
2020
0 11
The fiscal deficit will be almost eliminated in FY 2023 Actual and projected fiscal balance, Total Crown
% of GDP 4 2 0 -2 -4 -6 -8
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024 2025 2026 Fiscal Year ending in June
Source: The Treasury Half-year Fiscal and Economic Update. 12
Long-run fiscal pressure needs to be addressed % of GDP
Gross general government debt, SNA basis
180 Baseline scenario
160
Healthcare and pension reforms after 2025
140
Higher interest rates
120
Fiscal consolidation scenario
100 80 60 40 20 0
2010
2020
2030
2040
2050
2060
Note: The baseline scenario corresponds to the case where healthcare and pension spending grows along the historical trend. The healthcare and pension reforms scenario corresponds to the case where healthcare expenditure growth is reduced by 0.5 percentage point from the baseline in addition to the pension reform. The higher interest scenario assumes that nominal interest rates rise faster than in the baseline and reach 5.5% in 2060 (as opposed to 4.3%). In the fiscal consolidation scenario the debt-to-GDP ratio remains at around 48%. Source: OECD computation based on information from the NZ Treasury.
13
Low labour productivity contributes to the income gap % 85 80 75
A. GDP per capita relative to the US level GDP per capita, as share of US GDP per capita GDP per capita, excl. trading gains, as share of US GDP per capita
75
B. Labour productivity¹, ² relative to the US level Labour productivity Labour productivity, excl. trading gains³
70
70
65
65
60
60
55
55 50
% 80
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
50
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
1. At current PPP exchange rates. 2. Labour productivity is measured using total employment rather than hours worked owing to data limitations. The United States is used as a benchmark because it has long been the productivity leader and because there is little difference between values for the United States and the population-weighted upper half of OECD countries. 3. Trading gains, or losses, equal the current trade balance deflated by a single price index, minus real exports, plus real imports. Trading gains thus capture the difference between real GDI and real GDP. Source: OECD Economic Outlook database.
14
New Zealand’s labour market is flexible Strictness of employment protection, individual and collective dismissals (regular contracts), 2019 Index 4 3.5 3 2.5
OECD Average
2 1.5 1
NLD
CZE
PRT
TUR
CHL
DEU
FRA
ITA
SVK
GRC
SWE
KOR
ISR
NOR
POL
AUT
MEX
LUX
SVN
BEL
ESP
FIN
EST
AUS
NZL
HUN
ISL
DNK
CHE
JPN
GBR
IRL
CAN
0
USA
0.5
Source: OECD Indicators of Employment Protection. 15
Emission reductions need to be accelerated Greenhouse gas emissions With existing measures
Gross emissions (Mt CO2-e) 80
Target
70 60
Required reductions to meet targets
50 40 30 20 10 0
2020
2025
2030
2035
2040
2045
2050
Note: The blue line shows the projected path of gross GHG emissions under existing measures. The red line shows the target path for gross emissions consistent with achieving both the 2030 Nationally Determined Contribution and, for non-agricultural sectors, the 2050 net zero emissions target. This line includes agricultural emissions with existing measures. The difference between the blue and the red line is the amount of emissions in the non-agricultural sector that needs to be reduced to achieve the net-zero target for this sector by 2050. Source: Ministry for the Environment (2021), New Zealand’s Projected Greenhouse Gas Emissions to 2050.
16
Taxation of environmental externalities is low Environmentally related tax revenue as a percentage of GDP, 2019 or latest year available % 4 3.5 3 2.5 2 1.5 1
0
COL USA CAN MEX ISL NZL JPN CHL IRL CHE GRC AUS LUX DEU ESP NOR LTU SWE SVK OECD BEL TUR GBR HUN FRA AUT CRI POL CZE PRT ISR KOR FIN ITA LVA DNK SVN NLD EST
0.5
Note: The data refer to 2018 for Colombia and Israel, 2016 for Australia and the United States, 2014 for Canada and Korea. Small advanced economies are defined as the OECD countries with populations of 1-20 million and per capita incomes above USD 30 000. Source: OECD (2020) Policy Instruments for the Environment (PINE) database.
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Key recommendations for a strong and sustainable recovery • Increase ICU capacity and vaccination rates among vulnerable groups. Progressively relax border restrictions, as planned. • Withdraw fiscal stimulus rapidly to reduce the burden of macroeconomic stabilisation on monetary policy. Commit to explicit long-term debt-to-GDP targets. Increase the old-age pension eligibility age by linking it to life expectancy and take measures to limit the impact on disadvantaged groups. • Tighten monetary policy to the extent necessary to bring inflation back within the target band and to ensure that inflation expectations remain anchored. • Complement loan-to-value restrictions by requiring banks to use minimum interest rates for assessing borrowers’ debt servicing capacity or by introducing debt-to-income restrictions.
18
Key recommendations for a strong and sustainable recovery (continued) • Increase municipalities’ investment in housing infrastructure by removing barriers to the use of special purpose vehicles (SPVs) and providing city councils greater incentives to accommodate growth. • Boost productivity by: enhancing competition in the retail grocery sector; further streamlining the FDI screening procedure; complementing R&D tax credits with targeted grants; and reviewing the corporate tax rate. • Introduce the Social Insurance Scheme and incorporate design features that encourage a rapid return to employment. • Complement rising carbon prices from progressively tightening the supply of emissions permits with targeted measures for market failures not corrected by carbon pricing alone. • Apply volumetric charging for water and wastewater. Introduce congestion charging in Auckland. See more policy recommendations in the 2022 Economic Survey of New Zealand.
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BOOSTING PRODUCTIVITY THROUGH DIGITALISATION
The digital sector is relatively small Value added by information industries as % of total value added, 2016 or latest
% 16
Information services breakdown not available IT and other information services Telecommunications Publishing, audiovisual and broadcasting Computer, electronic and optical products
14 12 10 8 6
OECD Average
4 0
TUR NZL CHL COL MEX GRC PRT ESP LTU ITA POL BEL AUT NOR CAN CRI SVN AUS ISL SVK LVA NLD DNK FRA DEU EST GBR JPN CZE HUN CHE LUX FIN USA SWE KOR IRL ISR
2
1. Values for Colombia, New Zealand, Poland, Portugal, Spain, Sweden and Turkey are for 2015 and values for Canada are for 2014. 2. Small advanced countries are defined as the OECD countries with populations of 1-20 million and with per capita incomes above USD 30 000. Source: OECD, STAN Database, http://oe.cd/stan, National Accounts Statistics, Inter-Country Input-Output Database, http://oe.cd/icio and national sources, December 2018.
21
There is room to boost digital exports Exports of predominantly digitally deliverable services as % of total exports, 2017
% 80 70 60 50 40
Audiovisual and related services Telecommunications, computer and information services Charges for intellectual property use not included elsewhere Financial services Insurance and pension services
30 20 0
TUR GRC PRT LTU CHL SVN AUS NZL ISL DNK EST MEX POL SVK NOR ESP AUT KOR HUN CZE ITA LVA FRA BEL CAN DEU ISR JPN OECD SWE USA FIN NLD GBR CHE IRL LUX
10
Note: For Chile, Mexico, New Zealand and Switzerland, Audiovisual and related services include Other personal, cultural and recreational services. Small advanced countries are defined as the OECD countries with populations of 1-20 million and with per capita incomes above USD 30 000. Source: OECD, International Trade in Services Statistics (ITS), WTO, Trade in Commercial Services, October 2018.
22
Many small firms sell online The share of small firms selling online is high % 70 60 50 40 30 20
0
TUR GRC LUX LVA FRA POL HUN ITA PRT EST DEU SVK NOR COL BEL SVN NLD GBR OECD CAN AUT CZE LTU SWE IRL DNK AUS NZL
10
Source: OECD Going Digital Toolkit (2021) https://goingdigital.oecd.org/. 23
The quality of digital infrastructure is high % 90
The share of fibre connections in total fixed broadband
2020 Q4
2018 Q4
80 70 60 50 40 30 20 0
GRC BEL AUT GBR DEU ISR ITA CRI IRL USA COL CZE NLD AUS CAN CHE TUR POL MEX HUN OECD FRA SVK DNK CHL SVN EST LUX PRT FIN NOR NZL ISL LVA ESP SWE LTU JPN KOR
10
Note: Small advanced countries are defined as the OECD countries with populations of 1-20 million and with per capita incomes above USD 30 000. Source: OECD, Broadband Portal, http://www.oecd.org/sti/broadband/broadband-statistics/
24
The e-government is advanced OECD OURdata Index scores, 2019 1 0.9
Data availability
Data accessibility
Government support for data re-use
0.8 0.7 0.6 0.5 0.4 0.3 0.2 0
TUR LTU SWE CHL CHE FIN DNK SVK DEU EST PRT LUX LVA GBR BEL ISR ITA CZE NOR POL USA NLD NZL AUT SVN GRC ESP MEX AUS CAN JPN IRL FRA KOR
0.1
Note: OURdata Index is a composite index with a maximum value equal to “1” corresponding to the best practices. See Lafortune and Ubaldi (2018) for more information. Small advanced countries are defined as the OECD countries with populations of 1-20 million and with per capita incomes above USD 30 000. Source: OECD OURdata Index on Open Government Data.
25
Many data on digitalisation are missing The OECD Going Digital Toolkit indicators missing for New Zealand Policy domain
Indicator missing for New Zealand
Access
Share of households with broadband connections Disparity in broadband uptake between urban and rural households Internet users as a share of individuals
Use
Share of individuals using the Internet to interact with public authorities Share of Internet users who have purchased online in the last 12 months Share of businesses purchasing cloud services
Innovation
Venture capital investment in the ICT sector as a percentage of GDP
Job
ICT task-intensive jobs as a percentage of total employment Percentage of individuals who live in households with income in the lowest quartile who use the Internet
Society
Disparity in Internet use between men and women Percentage of individuals aged 55-74 using the Internet Women as a share of all 16-24 year-olds who can program Percentage of individuals who use digital equipment at work that telework from home once a week or more
Market openness
ICT goods and services as a share of international trade Share of businesses making e-commerce sales that sell across borders Health data sharing intensity
Trust
Percentage of businesses in which ICT security and data protection tasks are mainly performed by own employees Percentage of individuals not buying online due to concerns about returning products Percentage of individuals not buying online due to payment security concerns Percentage of Internet users experiencing abuse of personal information or privacy violations 26
New Zealanders have a well-rounded digital skills set The share of individuals with a well-rounded skill set score at least Level 3 (inclusive), out of 5, in literacy and numeracy and at least Level 2 (inclusive) in problem solving
16-65 year-olds
16-24 year-olds
JPN FIN SWE NOR NLD DNK AUS AUT BEL DEU NZL CZE KOR SVK POL EST OECD CAN GBR USA IRL SVN ISR LTU GRC CHL TUR
FIN JPN NLD KOR BEL SWE DEU AUT EST CZE NOR DNK AUS NZL SVK OECD SVN POL CAN GBR IRL LTU ISR USA GRC CHL TUR 0
10
20
Source: OECD Survey of Adult Skills.
30
40
50 %
0
10
20
30
40
50
60 % 27
Students’ low maths performance is a concern 620
Average mathematics scale score, grade 4
620 620
Average mathematics scale score, grade 8
620 600
580
580 580
580
560
560 560
560
540
540 540
540
520
520 520
520
500
500 500
500
480
480 480
480
460
460 460
460
440
440 440
440
420
420 420
420
CHL NZL FRA TUR ITA PRT NOR SWE FIN USA GBR AUS HUN ISR LTU IRL JPN KOR
600 600
FRA NZL ESP SVK CAN ITA AUS POL DEU SWE HUN TUR PRT DNK BEL FIN CZE USA NLD AUT LTU NOR LVA IRL GBR JPN KOR
600
Note : Small advanced countries are defined as the OECD countries with populations of 1-20 million and with per capita incomes above USD 30 000. Source: Mullis et al. (2020), TIMSS 2019 International Results in Mathematics and Science. Retrieved from Boston College, TIMSS & PIRLS International Study Center website: https://timssandpirls.bc.edu/timss2019/international-results/
28
Exporters make more strategic use of digital tools The likelihood of owning website(s) with specific functions, The advantage of exporting firms against non-exporting firms
Note: The chart displays how much exporters are more likely than non-exporters to have the specific function in their websites, after controlling for differences in firms’ size and industry. Source: Sanderson, Wright-McNaughton and Yashiro (2022), “Does Fast Internet Increase Exports? Evidence from New Zealand”, OECD Economics Department Working Paper, OECD Publishing, forthcoming.
29
Managerial capabilities are relatively low Distribution of management quality, Kernel distribution
Density 1
New Zealand
0.9
Sweden
United States
0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0
0.5
1
1.5
2
2.5
3
3.5
4
4.5 5 5.5 World Management Survey scores
Note: The figure depicts the Kernel distribution of scores in the World Management Survey. The Survey captures the quality of management practices in operations management, performance monitoring, target setting, leadership management and talent management (see the source for more information). The longer left tail in New Zealand’s distribution indicates the existence of firms with a very low score (poor managerial practices), which are less prevalent in Sweden or the United States. Source: The World Management Survey Database (https://worldmanagementsurvey.org/ ).
30
Selected key recommendations for boosting productivity through digitalisation • Advance the national digitalisation strategy by providing a strong mandate for strategic coordination across all relevant policy areas and by collecting the data needed to support it. • Improve mathematics and science teaching in primary schools, including by putting more emphasis on inquiry plus guided teaching using well-articulated knowledge bases for both the student and the teacher. • Develop digital apprenticeships and internships and expand the GOVTechTalent graduate programme to all public sector organisations. Develop programmes to help Māori and women pursue digital careers. • Move toward goal-based regulations that stipulate regulatory objectives while allowing flexibility in technologies used. • Equip the NZ Commerce Commission with powers to order merger parties to apply for its clearance. • Provide seamless support to innovative digital start-ups for their early global expansion through better coordination between Callaghan Innovation and New Zealand Trade Enterprise. See more policy recommendations in the Economic Survey of New Zealand. 31
For more information
OECD OECD Economics https://www.oecd.org/economy/new-zealand-economic-snapshot/
Disclaimer: This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
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