NZ's strong economic growth numbers disputed


The latest economic growth numbers will be released on Thursday and they are expected to be strong. Very strong.

But there will also be questions asked about whether the growth is too reliant on the increase in population. Many people will feel like the growth in the economy does not seem to reflect their lives.

The market consensus is that the Gross Domestic Product (GDP) figures will show that the economy grew by 3.6 percent in the year to June. That is a sharp rise from 2.8 percent in the year to March.

Economists are predicting the figures will reveal there was marked increase in growth in the June quarter, with GDP rising by 1.1 percent. That compares to 0.7 percent in the March quarter.

The growth has been driven by the building industry. But the gains have extended to other sectors too. Business confidence is up, retail spending has been strong and agricultural production has rebounded.

The numbers look impressive. But economists at Westpac say they are "far from perfect."

They say the population grew by 2.1 percent in the year to June and that has been a significant factor in boosting economic growth.

If you strip out the population effect the per capita growth is much weaker, sitting at an estimated 0.6 percent in the year to June.

Does this matter? After all, isn't 3.6 percent growth still 3.6 percent growth no matter how it came about?

It depends on your perspective.

Last month Finance Minister Bill English was asked about this in Parliament by Labour's Grant Robertson.

The Finance Minister said: "I do notice that the Opposition and, to some extent, commentators, always say that whatever is causing growth at the moment is not valid growth, and that if you took it out growth would be zero. Well, that is true if you take away everything that is growing, there is no growth.

"But, in fact, for the 21-year-old Māori and Polynesian males who have just got apprenticeships in Auckland, and will get more because we are announcing the Tāmaki regeneration project, they think it is real growth."

Paul Glass from Devon Funds Management is one of those who believe the per capita number is the figure we should be looking at.

"You do need to strip out population growth because the number that matters is real GDP growth per capita."

He says this is just the same as the way that economists adjust the inflation figures to take account of population growth.

"We only grow our share of the economic cake when GDP per capita grows, otherwise we are running hard to stay still."

"That is why people don't really feel like the economy is growing strongly because on a per capita basis it isn't."

This issue is likely to be a big talking point when the GDP figures are released at 10:45am on Thursday.