Photo: RNZ
- Weak productivity, low investment, skill lack key factors in weak growth performance
- New Zealand hasn't been "rock star" economy for decades
- Further rate cuts possible but won't hit early pandemic lows
The Reserve Bank's chief economist has painted a dim picture of the country's economic outlook because of weak productivity, investment and trade.
In an online presentation about economic growth and interest rates Paul Conway said New Zealand has been tumbling down the international economic rankings for many years to the point that it now lagged well behind major trading partners and even emerging economies.
He said the level of productivity, private sector and government decisions, central bank interest rates and other factors would all determine the economy's growth potential.
"Over the next three years, we currently expect potential output growth to range between 1.5 percent and 2 percent per year. This is a lower economic 'speed limit' than in the recent past. This subdued outlook stems from expected ongoing weakness in productivity growth and lower net immigration."
His comments were based on forecasts made in the RBNZ's November monetary policy statement and avoided reference to the current state of the economy.
Conway said the reasons for poor performance ranged from weak international trade and foreign investment through to not putting enough into research and development, education, and corporate skills.
Asked after the presentation if New Zealand would resume being a "rock star" economy (a description given to the economy in the in 2014 by HSBC's chief Australia and New Zealand economist), Conway was dismissive.
"I don't think we've ever been a rock star economy since the 50s, that quip was relevant to a cyclical period in New Zealand's economic history when we were performing well ... we've had glimpses of it."
Interest rates and growth
Conway said the level of the official cash rate (OCR) would be determined by how well the economy performed and whether inflation was in the RBNZ's 1-3 percent target band.
He said at present the OCR was still putting the brakes on the economy - above neutral - which left scope for further rate cuts as implied in the November monetary statement.
"Easing domestic pricing intentions and the recent drop in inflation expectations help open the way for some further easing."
The neutral level of the OCR, the goldilocks rate that matches controlled inflation, was somewhere between 2.5 to 3.5 percent range, but Conway said a return to the rock bottom rates of the pandemic era were unlikely.
"Given uncertainty, we will need to 'feel our way' as the OCR gets closer to our estimate of neutral."
