Could NZ be better off than the stats indicate?
International comparisons of economic statistics can be fraught with difficulties and could have resulted in New Zealand’s economic performance being understated, Reserve Bank Governor Alan Bollard said in a speech to the Trans Tasman Business Circle in Auckland.
Different countries use different methodologies and data sources, meaning – in some cases – care needs to be taken when comparing economic statistics, Bollard warned.
He said the Reserve Bank believed that if consistent measurement conventions were used, the income gap between New Zealand and Australia and other OECD countries would narrow.
“Our view is that in New Zealand, some conservative statistical interpretations and particular characteristics of our economy have resulted in the understatement of New Zealand’s economic performance. In international league tables New Zealand is in some ways better off than is often thought.”
The Reserve Bank has explored differences in the way gross domestic product (GDP) is measured in Australia and New Zealand, such as:
- changing the way the “unobserved economy” is measured, which could add 2 per cent to New Zealand’s GDP. The unobserved economy includes cash jobs and work undertaken by households for their own use, like growing vegetables;
- changing how the financial services are measured could add another 2 per cent; and
- adjusting the way residential buildings are valued could add 1.5 per cent.
Further, when New Zealand adopts a new international statistical standard in 2013-14 GDP could rise by 3 per cent.
NZ’s GDP could be 10 per cent higher
Allowing for these differences, noted Bollard, New Zealand’s GDP could be significantly higher relative to other countries than currently measured. According to his ballpark guesstimate, GDP on his side of the Tasman could be 10 per cent higher than official data shows, compared to Australia.
“These are not definitive numbers, and we accept there are counter-arguments to them,” Bollard noted.
Revising New Zealand’s GDP does not lift actual incomes or purchasing power for New Zealanders, or raise tax revenues for the government, Bollard said. “We cannot make ourselves better off directly just by measuring things differently.”
But more comparable data is important to ensure individuals make well-informed decisions about training, migration and saving, and that financial markets have accurate measures of New Zealand’s ability to borrow and repay debt.
Governments also need good data to ensure well-informed social and economic policy, and to understand comparability with other countries, including that of our large trans-Tasman neighbour.
The trans-Tasman gap
Bollard said the Reserve Bank’s analysis did not answer the question of whether New Zealand was closing the trans-Tasman gap. “However, it does argue that the gap is not as wide as most people think.”
He noted that the Prime Ministers of Australia and New Zealand recently agreed that their respective Productivity Commissions would look at reforms aimed at increasing economic integration between the two countries.
“Given this aim, a useful contribution could be to improve harmonisation of statistical measurement in Australia and New Zealand, where appropriate, to improve data comparability.”
He said problems with the comparability of statistics were an international issue, and his comments were not a criticism of Statistics New Zealand. Rather they were aimed at making people aware of the issues, and encouraging a greater priority being placed on improving New Zealand’s economic statistics.
Bollard said he was aware that, in the area of GDP, Statistics NZ has plans in place to increase the ease of comparability of data with Australia.
Organisations like the United Nations and International Monetary Fund were working to make economic statistics more comparable. But for the time being there were pitfalls in making international comparisons.
“As usual, the devil is in the detail. Compare with care.”
Market reaction
Ben Jarman, from JP Morgan’s economic research team in Sydney, was circumspect in his analysis of the Governor’s speech.
“Surprisingly, for a speech that touches on such issues as the statistical treatment of bank interest margins and growing vegetables in your back yard, currency markets have reacted positively, but in reality there is almost no read-through to the cyclical dynamics, nor how the RBNZ are viewing such developments,” Jarman wrote this morning in a note to clients.
He conceded that the issues touched on the speech, given that they suggest the level of New Zealand’s GDP probably has been understated relative to global peers, are important in that they impact perceptions. “Indeed, jawboning the perception of New Zealand’s current state of affairs appears to be the central ambition of the speech. For one, getting the comparisons right gives households less reason to migrate,” said Jarman.
“Population leakage to Australia, for example, is a significant problem and to the extent that it is based on an overstated income gap, the Governor is right to set the story straight. Similarly, for a country highly dependent on foreign capital, due to a dearth of household savings and large budget deficit, it is important that financial markets and ratings agencies perform cross-country economic comparisons on an ‘apples to apples’ basis.”
However, Jarman concluded that the speech, focusing as it does on the level of GDP, and in particular, the unmeasured but cyclically-neutral bits of it, provided little reason for the market to change its views on the growth outlook for New Zealand.
- Categories
- New Zealand
- Tags:
- Reserve Bank of New Zealand, RBNZ, Alan Bollard
- Author:
- Bernard Kellerman, bkellerman@financialpublications.com.au
- Article Posted:
- February 17, 2012
Review this content
Fields marked with an asterisk (
) are mandatory.