Achieving Higher and More Sustainable Growth
In the 15 years to the end of 2004, New Zealanders experienced significant improvements in their living standards. Real GDP increased by an average of 3.2% a year. Nearly half a million jobs were created over that time. Since then, however, the performance of the economy has declined steadily.
Budget 2011 is about ensuring we get back to a higher and sustainable growth path
The Government believes that a balanced and competitive economy can deliver materially higher growth rates and create more jobs for New Zealanders. Budget 2011 is another important step in the Government's economic plan to put New Zealand on a higher and more sustainable growth path.
Real GDP per person has not grown since 2004. The economy was in recession even before the global financial crisis. The downturn in economic performance coincided with:
- a construction and housing market boom, with the prices of existing houses increasing 115% between 2001 and 2007. Household debt as a share of disposable income rose from 105% in 2001 to almost 160% in 2009
- a significant increase in government spending. Core Crown expenses as a share of GDP are 6% of GDP (about $13 billion) above the 1994 to 2004 average
- a sustained high real exchange rate, with the average level of the real exchange rate over the five-year period ending in 2010 being the highest since the 1960s
- real export growth averaging just under 1.4% a year, compared with 5.4% in the previous 15 years, and
- a decline in national savings, reflecting an initial steep decline in household savings, followed later by a decline in government savings. This was reflected in the current account deficit averaging 8% of GDP from 2005 to 2009.
The charts on the next two pages highlight these trends.
Progress has already been made
Assisted by the steps the Government has taken already, there are signs the economy is moving onto a more sustainable footing. Households and businesses have been saving more and shifting away from an excessive reliance on borrowing for their consumption and investment.
Strong growth in emerging market economies has driven a rebound in global growth and resulted in high prices for our commodity exports. New Zealand's terms of trade are at a multi-decade high. New Zealand has strong links to Australia and China, two of the world's best-performing economies.
The Rugby World Cup will provide a boost to the economy in late 2011, and the rebuilding of Christchurch will significantly increase activity in 2012 and beyond. As this rebuilding gets underway, annual economic growth is forecast to rise to 4% in 2012/13.