Too good to last

The future for National

ON ANY OBJECTIVE measure, New Zealand looks as safe a place to hold down a job as anywhere in the developed world right at the moment.

It may not be the best-paid, by any stretch of the imagination, and if you’re living in Auckland and don’t yet own a house, those wages are going to look even less attractive against the cost of getting on the property ladder.

But by most other indicators, New Zealand is enjoying a rare period of sustained economic expansion.

Unemployment is closing in on 5% at the same time as the country experiences record immigration and some of the highest rates of workforce participation in the OECD. It’s too strong to say that if you can’t find work in this environment that you may also not have a pulse, but it’s not far off.

The outlook for the next two or three years is also for economic growth to plug along between 2% and 3% a year, which is strong by historical standards.

The trouble with that, however, is that the present and the immediate future are most often judged against the standards of the recent past.

And the recent past – between about 2011 and sometime early this year, is starting to look like a golden age of economic expansion in New Zealand. (Granted, a goodly chunk of that expansion was the result of the Canterbury earthquakes and anyone reading this in Christchurch would be justifiably offended to have this period described as in any way ‘golden’.)

But at a national level, the combination of high dairy prices, rocketing growth in exports to China, strong migration, low petrol prices, Canterbury rebuild activity and historically low interest rates created an undeniably powerful growth impulse.

To the extent that voters got used to that combination and returned a National-led government last September, the outlook for the 2017 election is nothing like as promising.

Dairy prices are expected to recover to their 2014 highs, but not before 2019, according to the latest forecasts from the Ministry for Primary Industries. Chinese demand for dairy products is moderating not only because of the short term impact of a large inventory build-up, but also because China’s own dairy production is rising while dairy producers elsewhere have ramped up output too.

Inward migration may continue to be stronger than is currently forecast, but most economic soothsayers are predicting a return to average inward flows of around 16,000 people a year, well down on the current 60,000.

That reduction probably needs to happen just to take the pressure off Auckland – not just its house prices, but also its physical and social infrastructure – but it won’t be without its impact on domestic consumption.

In Canterbury, construction activity will continue at around current high levels for at least another five years before finally beginning to tail off, but the growth in that activity is over. It will no longer be contributing to increases in the rate of economic growth.

And finally, interest rates will almost certainly be on the rise by early 2017. They still won’t be high. In fact, if the official cash rate cracks 5% again this decade, I’ll eat my hat (and I do have one).

For a Government seeking re-election and a fourth parliamentary term – something that’s only happened three times in the last century – that all adds up to a much higher hill to climb to victory than National faced in either 2011 or 2014.

John Key’s preferred Prime Minister ratings, around the 50% mark after seven years at the helm, mean he remains a political force to be reckoned with. Still, by mid-2017, it’s a fair bet they will be lower than they are now.

Key will be tired and the team around him will have had many more opportunities for the pratfalls and botch-ups that eventually tip a government out of office, no matter how good they were or how strong the economy was.

The conventional wisdom is that governments lose elections, oppositions don’t win them. Even so, New Zealand’s left-leaning Opposition parties will have to look a lot more like a government than they do at the moment – or have looked for the last 10 years – to be in with much of a chance.

The economic wind will be at their back in 2017 – there will be worrying narratives aplenty, especially from the regions, which will likely have had three years of drooping dairy prices by then and three more years in which to build up resentment towards Auckland.

But to really have a show in 2017, Labour will need freshly-articulated, cleverly-honed new policies, and the kind of strong working relationship with the Greens that they lacked last time.

On showings to date, progress towards either of those goals is achingly slow.

It is still less than a year into the current parliamentary term. There is still time, but it’s a-wasting.

Pattrick Smellie is a founder of the Business-Desk news service. He puts “human cannonball” as his occupation on immigration forms. @pjsmellie

Unemployment is closing in on 5% at the same time as the country experiences record immigration and some of the highest rates of workforce participation in the OECD. It’s too strong to say that if you can’t find work in this environment that you may also not have a pulse, but it’s not far off.”