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.
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:// bit.ly/2bPiLkj). 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,