We want to help Kiwi businesses succeed so we've teamed up with Dr. Ganesh Nana, Chief Economist of Berl Economics to bring you this economic update.
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The government’s budget heralded no surprises for small-to-medium enterprieses (SMEs) businesses this year. Budget spending was based on expectations of steady GDP growth of 2.8% a year over the next four years, with unemployment forecast to fall below 5% in 2016. In line with this context, average wages are expected to rise by $7,000 to reach $63,000 by mid-2019.
While there were increases for bigger ticket items such as Ultra-Fast Broadband and expected ACC levy cuts over the next two years, there were no allocations for strategies or initiatives aimed specifically at SMEs. Increased funding for he New Zealand Business Number (NZBN) initiative was perhaps the exception.
$210 million was announced for extending the rollout of Ultra Fast Broadband to 80% of the country, with $150 million set aside for improving rural broadband. This will help improve the connectivity of the regions to the rest of the world and ideally lead to job creation and greater diversity and innovation.
Meanwhile ACC levies will be reduced by $375 million in 2016 with a further $125 million cut in 2017. The cuts will be across the work and earners and motor vehicles accounts. This could mean potential savings for small businesses.
The NZBN is set to receive an additional $12.1 million over the next four years. There are around 1.1 million companies in New Zealand which already have NZBNs, and this funding will look to extend the NZBN to partnerships, sole traders, and trusts. This is aimed at making it more efficient to work with other businesses as well as government, with the benefits of lower compliance costs.
Other relevant Budget allocations are the $25 million for establishing regional research institutes; $80 million over four years for research and development to be administered by Callaghan Innovation; and $113 million for tertiary sector education.
While New Zealand’s GDP per capita has certainly been growing over recent years, it hasn’t equated to a cup spilling over with milk and honey. With GDP growth rates above the 3% per annum mark and population growth in the 1% to 1.5% per annum range, GDP per capita has remained just below the 2% per annum milestone.
The country’s terms of trade have been declining less sharply after experiencing a sizeable dip in early 2014. This was caused by the decline in the price of imported petrol offsetting weaker dairy export prices. This bounce back may be only temporary though as crude oil prices are on the rise again while dairy prices remain low.
GDP growth has recently been supported on the back of the Christchurch rebuild, strong migrant inflows, as well as fairly strong private consumption. But this is expected to moderate as the rebuild eases and the population growth rate is expected to return to historical norms.
Despite this recent growth, there is still much potential to improve our productivity. Consequently, New Zealand remains below the OECD average in terms of GDP per capita, hovering between 80 and 85% of the OECD average over the last several years. This is in contrast with the 1970s to early-1980s period where New Zealand was comfortably at or above the OECD average. Since the early-1990s the picture shows reassuring gains, but also reinforces the long-term story of a slow and lengthy period of adjustment.
While not a new issue, much of this relatively productivity struggle is usually attributed to our geographic isolation and weak international connections, small domestic markets, and a large number of small firms.
The recent Budget allocation for Ultra-Fast Broadband should go some way towards improving this by building and extending connectivity infrastructure for businesses.
However, the challenge is much broader in scope than merely making internet speeds faster. Skills and training are important as will be the often advocated and much needed rise in production of high value added goods and services. In contrast, the recent declines in global dairy prices only highlight New Zealand’s ongoing reliance on the agricultural sector.
The unemployment rate is holding steady so far at 5.8%. The growing labour force participation rate has been bolstered by an ongoing inflow of migrants. A weaker economy across the ditch is seeing more Kiwis staying in the country, with New Zealand’s relatively stronger economy drawing in Australians as well as returning Kiwis.
Labour force participation has also been growing as greater numbers of the younger cohort enter the workforce.
Employment in younger age groups has grown quite strongly over the year to March. This is particularly evident in the 25-29 age group, which increased by 15,600 over the period. Employment in the 15-19 year old and 20-24 year old age groups grew, by 13,200 and 13,600 respectively.
Meanwhile, the middle-age cohorts faced the opposite trend, with a decline of 1,500 in the 45-49 age group and 1,100 in the 50-54 age group. Further, growth was subdued in the 55-59 age bracket with numbers increasing by 1,900, well below the substantial increase of 11,600 seen in the previous year.
At the older end of the age scale, there has been strong growth in the over 65 bracket with 11,800 more people in employment. Overall, it looks as if employment numbers at the two ends of the age scale are picking up, while job numbers for the middle age cohorts remains relatively flat.
At the industry level, the year to March saw continuing growth in building construction employment. ‘Other services’ saw the second largest increase in employment in the year to March which saw numbers growing by 17,700. This includes services such as hairdressing, sports and recreation activities, and gambling activities, amongst others.
Employment within the agriculture, forestry and fisheries industries declined over the last year, with numbers falling by 5,500. Financial and property services (which include insurance, rental and hiring, and real estate services) employment numbers also fell over the period as did trade and accommodation. Overall, most industries saw some growth in employment numbers, with the total in jobs increasing by nearly 73,000 over the past year.
Car registrations have continued their upward trend since December 2011, with the total number of registrations for the year to April standing at 229,406. Consequently, the number of new car registrations grew 18.5% over the past year.
Monthly car registrations dipped in April across the major car makes though, after a short boost during March. A combined total of 17,411 cars were registered during April, the majority being Toyota and Mazda makes, with 3,262 and 2,402 registrations respectively.
On a percentage basis, the greatest growth in new car registrations was seen on the West Coast. The region saw 27.6% more new car registrations in the 12 months to April than that for the previous 12 months. Note though, this percentage growth is off a relatively small base. Indeed, the West Coast continues to be the smallest in terms of new car numbers, with less than a third of the second-lowest region (Southland).
The number of car registrations has been increasing in line with growing vehicle imports. Vehicle imports for the year to March were up 8.4% on the previous year, with the latest 3 months up 10.2%. Used car imports have similarly been rising, which has also had an impact in lowering the price of new cars. This influx has continued in large part due to the relative strength of our exchange rate.
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