Thursday 10th August 2017
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Reserve Bank governor Graeme Wheeler wants a greater debate on how to boost New Zealand's soggy productivity levels as a means of boosting the nation's living standards.
While New Zealand's economy and labour market have been enjoying strong growth in recent years - buoyed by record migration stoking population growth, record low interest rates, a construction boom, and good terms of trade - flat productivity over the same period has meant wages haven't kept pace and that's something policymakers need to address, Wheeler told Parliament's finance and expenditure select committee.
"You've seen good output and employment growth over the last five years, but you've seen weak productivity growth," Wheeler said. "It would be great to see much more debate in the country about how to lift productivity growth because that's what's going to determine our real living standards."
Labour productivity shrank 0.1 percent in the 2017 March year after contracting 0.2 percent in 2016, although the central bank predicts it will hit 0.9 percent by 2020, the end of its forecast horizon, which would be the highest level since 2011.
Wheeler has had to contend with a global environment of low inflation and while major central banks' ultra-loose policy has had a role in that, he said there were other structural changes that had also kept a lid on rising consumer prices.
"There's much greater competition in non-tradeable space in terms of a lot of what we thought was non-tradable inflation are now much more tradable in terms of global education, health, construction, retailing, we've seen a technology revolution in oil and gas sector and there's a lot of writing now about the gig economy," he told media earlier in the day.
A flood of returning expats and new migrants has bolstered the working age population helping to keep a lid on wage growth and other changes in the labour market were compounding that inflation outlook, with globalisation and technological displacement, weaker bargaining positions for employees and reduced unionisation potentially putting making job security more important than higher salaries, Wheeler said.
Many of those factors were international in nature, and Wheeler gave MPs a piece of advice in recognising that New Zealand's economy is hugely influenced by overseas events.
"What's happening in international financial markets is immensely important - we're a very small player in in this world," he said. "Central banks have constraints in terms of what they can influence in terms of exchange rates and long term interest rates for example - there' s a whole range of structural factors globally affecting the economy."
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