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Topic 11: Economic resilience

With a growing population, economic growth is necessary to maintain the material quality of life New Zealanders enjoy at present levels. This topic focuses on aspects of the economy which either enable or threaten economic growth over the long term. For economic growth to occur, the capital base of assets on which the economy depends needs to be maintained by ongoing investment in, for example, buildings, equipment, transportation, and infrastructure, while ensuring that indebtedness does not unfairly limit the options of future generations.

Real gross domestic product (GDP) per person was included as a contextual indicator in 2002 (Statistics NZ, 2002) but has not been included in this report. However, in the living conditions topic (topic 12) we look at the extent to which people’s needs are being met by the economic system and, for this purpose, we use the indicator real gross national domestic income per person (which measures the volumes of goods and services that New Zealanders have command over).

Main results

Sustainable development requires that an economic system meets the needs of society. Ensuring the economy can achieve this in the long term, requires continuing investment as capital stocks are run down or diminished through depreciation and disposal. In the 20 years to 2008, the growth in New Zealand’s stock of capital assets has more than kept pace with the growth in population.

International debt and diversity of trade can also affect economic growth over the long term.

In 2008, more than one-sixth of New Zealand’s export earnings was needed to service its overseas debt. At the same time, the four largest categories of goods exported made up 44 percent of New Zealand’s total exports by volume. Export diversity provides more insulation from external shocks, as can low levels of government debt. Between 1994 and 2008 the Crown’s net debt decreased.

Table 11.1
Economic resilience indicators – key results

 Economic resilience indicators - key results.

What the indicators tell us

Real net stock of total assets and of infrastructure per person (indicators 11.1, 11.2)

Produced capital includes fixed assets that are used repeatedly or continuously in the production process for more than one year. This includes machinery, equipment, buildings, and infrastructure. Long-term changes in the stock of produced capital are more indicative of the wealth of the nation than GDP, which measures current economic activity. Ensuring that a broad base of asset types within the capital stock is maintained can increase options in the future.

The volume of net capital stock, which measures the value (adjusted for inflation) of fixed assets held for production, rose 64.6 percent from 1988 to 2008. The increase per person, which takes into account the population increase over the same period, was 28.9 percent.

Infrastructure enables economic and social activity. For example, people and businesses require transport and energy networks to meet daily needs and business operations. Investment in non-building construction is used as a proxy indicator.

Net capital stock per person for non-building construction increased at a slower rate than for total capital stock. The increase was 14.0 percent from 1988 to 2008, implying that relatively more net investment went into buildings, vehicles, machinery, and equipment than into infrastructure (see figure 11a).

 Real net capital stock per person, total and infrastructure.

Real investment in fixed capital per person (indicator 11.3)

Acquisitions and additions to fixed capital perform an important role in the economy when coupled with maintaining a broad base of asset types. Continued capital investment, in turn, increases the opportunity for individuals to participate in the economy, and meet their needs through greater production and subsequent returns via profits, or salaries and wages.

The rate of investment in fixed capital per person has risen strongly by 75.9 percent from 1988 to 2008 (see figure 11b). The principal driver of this has been investment in plant, machinery, and equipment. Since 2001 (from when data is available), the increase in investment of plant, machinery, and equipment has been mainly sourced from imports.

 Real gross investment in fixed capital per person, 1988–2008.

Ratio of debt services to export earnings (indicator 11.4)

New Zealand has experienced a deficit on its current account balance with the rest of the world every year since (and including) 1973. Without the ability to fund these deficits, their continuance could place a higher burden on future generations. Furthermore, over the long term, earnings from overseas trade should be sufficient for servicing overseas debt obligations. At the very least, the accumulation of debt should not run the risk of jeopardising investment options for the future.

This indicator shows how much is paid overseas in interest, to service debt, in relation to how much is received from overseas trade earnings for exported goods and services. The ratio derived is an indication of how much the country earns compared with how much is needed to service foreign debt.

Since 1994, the annual ratio has varied from a low of 10.0 percent to a high of 17.9 percent. There were two years in this period where the ratio was at its highest – in 1999 and again in 2008 (see figure 11c).

 Debt service to export earnings ratio, 1994-2008.

Diversity of exports (indicator 11.5)

Diversification of trade in goods and services will, for a trading country such as New Zealand, encourage robustness in our economic activity. Lack of diversity increases dependence and therefore threatens economic resilience.

This indicator looks at exports in volume terms. From 2001 to 2008, export volumes rose as follows:

  • total goods and services – 24.4 percent
  • total goods – 30.3 percent
  • the four largest goods commodity groups (including dairy products) – 20.0 percent
  • dairy products – 46.3 percent, although there have been fluctuations during the period.

The growth in goods volumes exported, from 2001 to 2008, shows that over that period New Zealand became relatively more dependent on its goods exports. Although New Zealand became less dependent on the four largest goods commodity groups together (dairy products; meat and meat products; wood and paper products; and metal products, machinery, and equipment), overall it became more dependent on exports of dairy products (see figure 11d).

 Diversity of exports by volume, 2001–08.

Government debt (indicator 11.6)

Debt, in general, constitutes a burden for future generations as it reduces the amount of income available for their consumption and investment. Debt incurred by government can limit its options and ultimately affect the stability of policy settings.

In the 20 years to 2008, New Zealand’s central government has set itself the goal of managing debt at prudent levels. This indicator measures central government debt, both gross and net, as a proportion of gross national income.

Between 1994 and 2008, the gross debt proportion fell from 61 percent to 23 percent, and net debt from 51 percent to just above 6 percent. The declining proportions are shown by the widening gaps in figure 11e. While gross national income more than doubled between 1994 and 2008, both gross and net government debt decreased.

 Government debt and gross national income, 1994–2008.

About the indicators

Real net stock of total assets and of infrastructure per person (indicators 11.1, 11.2)

Net stock of total assets represents accumulated investment, less retirements and accumulated depreciation for assets still operating (that is, gross capital stock less accumulated depreciation on assets still in operation).

The infrastructure indicator (11.2) is a sub-series of total capital stock (11.1). Infrastructure is the capital stock of non-building (other) construction. Examples of infrastructure assets included here are network and utility systems used for power generation, and central and local government roading and railways. However, it does not include building construction for the provision of health, education, or other government services.

Both indicators are volume series, expressed in 1995/96 dollars, therefore removing the effect of price changes. The measures per person are based on the estimated population of New Zealand at 31 March each year (de facto up to 1991 and resident from 1992).

Real investment in fixed capital per person (indicator 11.3)

The indicator is a volume series, expressed in 1995/96 dollars, therefore removing the effect of price changes. The measure per person is based on the estimated mean population of New Zealand (de facto up to 1991 and resident from 1992).

Ratio of debt services to export earnings (indicator 11.4)

This indicator compares gross interest flows from servicing New Zealand incurred overseas debt with the receipts from the exports of goods and services. Values are in current prices.

The data is only available from 1994.

Diversity of exports (indicator 11.5)

The indicator uses volume series, expressed in 1995/96 dollars, therefore removing the effect of price changes.

While data for ‘total exports’ and ‘exports of goods’ is available prior to 2001, because of changes in the classification of the goods categories these series are only available from 2001.

Government debt (indicator 11.6)

The debt information is from the financial statements of the Treasury. Gross debt, described as gross sovereign issued debt, includes core Crown debt only (eg, Treasury bills, Government Bonds, Kiwi Bonds, and settlement cash deposits with the Reserve Bank of New Zealand). It does not include debt of state-owned enterprises, Crown entities (eg, Accident Compensation Corporation or Earthquake Commission), or of local government. Net debt is gross debt less financial assets (investment).

The data is for June years and is compared with gross national income for the immediately preceding March year. Both debt and gross national income are in current values.

Table 11.2
Economic resilience indicators – defining principles

 Economic resilience indicators - defining principles.

See part C for the complete list of defining principles for all indicators.

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