The fu­ture of growth

Di­eter Adam ex­plains why the niche and fast mov­ing na­ture of New Zealand’s man­u­fac­tur­ing sec­tor may be a key ad­van­tage in the race to stay glob­ally com­pet­i­tive.

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Since the GFC eco­nomic re­cov­ery around the world has been rel­a­tively slow, with many ad­vanced economies strug­gling. New Zealand has had a bet­ter time through­out this pe­riod than many, but we can­not avoid feel­ing the pinch from weak ex­port mar­kets.

In this pe­riod, we have also en­tered a new world in terms of in­fla­tion. In­stead of bat­tling ex­cess in­fla­tion, as was the case in much of the past three decades, many economies are now fight­ing very low in­fla­tion.

Th­ese is­sues were some of the main top­ics at a re­cent cen­tral bankers’ con­fer­ence, where heads of cen­tral banks dis­cussed how ef­fec­tive their cur­rent strate­gies are, and what might be needed in the fu­ture.

When in­fla­tion is low, in­ter­est rates are usu­ally low­ered to boost eco­nomic growth via lower bor­row­ing costs, push­ing ac­tiv­ity closer to ca­pac­ity and fu­el­ing in­creases in prices.

How­ever, in our new post-GFC world this con­nec­tion ap­pears to be weak­ened. Economies such as the US, Ja­pan and the Eu­ro­zone have turned on the print­ing presses to in­ject money into fi­nan­cial mar­kets in an at­tempt to move in­fla­tion, but this does not ap­pear to be get­ting into the hands of real peo­ple, where it re­ally mat­ters for boost­ing spend­ing and growth. There are even cases of neg­a­tive in­ter­est rates be­ing used by cen­tral banks.

Be­cause New Zealand’s in­ter­est rates have re­mained sig­nif­i­cantly higher than those in many of th­ese coun­tries, our ex­change rate has been over­val­ued, putting pres­sure on Kiwi ex­porters.

This is a con­cern that needs to be taken se­ri­ously by the Re­serve Bank.

One of the mes­sages to come out of the cen­tral bankers’ con­fer­ence was that gov­ern­ments need to be do­ing more to sup­port the mea­sures taken by their cen­tral banks. In re­cent decades, gov­ern­ments have ap­peared less will­ing to use fis­cal pol­icy to spur growth. This is par­tic­u­larly rel­e­vant in many coun­tries, in­clud­ing New Zealand, where there is a need to in­vest in in­fra­struc­ture not only to bet­ter sup­port cur­rent and fu­ture growth, but also be­cause some of our cur­rent in­fra­struc­ture is now get­ting close to its use­ful life – like sewage lines, for ex­am­ple.

Also, a sig­nif­i­cant in­crease in pop­u­la­tion needs to be ac­com­pa­nied by an in­crease in in­fra­struc­ture, as is the case in New Zealand.

How­ever, if cen­tral banks and gov­ern­ments can­not spur growth, where else might it come from?

Time for a rev­o­lu­tion

There is a great TED talk by BCG’s Olivier Scal­abre, called The next man­u­fac­tur­ing rev­o­lu­tion is here (http:// In this, he dis­cusses the is­sue of de­clin­ing eco­nomic growth in the past 50 years, and how most of the pe­ri­ods of sig­nif­i­cant growth have been led by rev­o­lu­tions in man­u­fac­tur­ing – from the in­dus­trial rev­o­lu­tion, to masspro­duc­tion and au­to­ma­tion.

Scal­abre sug­gests we are at the start of an­other rev­o­lu­tion, and that this may be the real source of fu­ture growth and pro­duc­tiv­ity that the global econ­omy needs.

Much of the tech­nol­ogy changes re­lated to this have been dis­cussed in our re­cent fo­rums on In­dus­try 4.0.

Scal­abre en­vi­sions a near fu­ture where man­u­fac­tur­ing in­creas­ingly moves away from large scale mass pro­duc­tion. He be­lieves the man­u­fac­tur­ing sec­tor will be made up by smaller com­pa­nies,

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