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By Susan Edmunds of RNZ

New Zealand’s engineered post-Covid recession has pushed our wage growth to near the bottom of the world in recent years.

Comparing real gross domestic product per capita, converted for purchasing power parity, New Zealand ranks 25th out of 43 for growth over the past decade and 37th for the past two years.

The only places that rank below New Zealand in the most recent two years are Germany, Canada, Luxembourg, Austria, Ireland and Estonia.

Israel was top for the decade and Turkey for two years.

Infometrics chief forecaster Gareth Kiernan said it was another example of the country having to pay the price for its Covid overheating.

“We can’t expect activity to go back to those levels any time soon. That’s why the economic recovery is taking so long to get going and why next year’s growth figures don’t look that exciting in the context of how poorly the economy has performed since 2023; or why the construction industry is being naïve in hoping that a residential consent rate of 34,000pa will be the bottom of the cycle.

“We went up such a long way during the pandemic, borrowing growth from the future through ultra-low interest rates and massive government borrowing and spending, that the return to ‘normal’ levels of activity means that current conditions feel terrible by comparison.”

BNZ chief economist Mike Jones agreed it reflected the state of the economic cycle in New Zealand compared to other parts of the world.

“We’ve gone from having one of the tightest labour markets anywhere through 2022 and 2023 to now being a little out of step in the other direction, with labour demand weaker and consequently spare labour market capacity more obvious here than the likes of the US, Australia, or even the UK. Wage growth has consequently come off the boil a little faster in NZ.”

He said the impact was not only being felt in existing roles but in advertised vacancies as well.

“I saw the other day that the Seek advertised salary index puts NZ at 2.2% year-on-year, below the US at 2.4%, Australia at 3.3% and the UK at 5.9%.”

But he said there were also structural problems that kept our wage growth below other comparable countries’ over a longer period of time.

“It’s hard to go past low productivity growth. That’s something many of our peer countries have been grappling with over the past few years but certainly NZ has grappled more than most.

“There are some signs this might be starting to improve but NZ has nonetheless spent the past few years more at the low end of international comparisons.

“So, I think for things to improve we need to see the economy find its feet, such that employers have the confidence to get back into hiring mode, utilising some of the labour capacity that’s out there. Longer-term I think it’s about productivity.”

Westpac chief economist Kelly Eckhold said other countries had a similar post-Covid track. Canada had performed poorly in recent years on similar measures, he said.

“The only standout exception is the United States, which has actually had consistently stronger GDP per capita than everyone else. So we went up more between 2020 and 2022, and now we’ve tended to go down a bit more than, for example, you saw in Australia and the UK since then … all of these economies in the last few years have had a weak per capita GDP growth because of the tightening cycle required to bring inflation down.

“New Zealand has started to improve in the last couple of quarters, like in Q4 and Q1 this year, we had increasing per capita GDP. That’s a bit better than, for example, you saw in Australia and the UK. And I would sort of suspect that’s related to the fact that we’re a bit further through our easing cycle than both of those countries.”

But he agreed there were long-term structural challenges.

“Low levels of productivity growth … you know, that obviously sheets home to growth in real incomes and standards of living. And most of those things have got very little to do with monetary policy, more to do with the sorts of factors that you think might boost productivity.”

He said some potential issues with the economy had been highlighted by the fact that some sectors had seemed to be able to weather the downturn much more easily than others.

“There’s decent parts of the CPI that seem impervious to a weaker output gap, because, you know, they’re just not as market sensitive. And then one of the factors in the play of that is that they’re just not as competitive.

“There’s also obviously issues to do with our distance that we are from the rest of the world and major markets that puts us at a disadvantage to certainly most European jurisdictions.”

He said the US had been helped by things like the AI boom and consumer spending being stronger than many other countries. But he said some of that country’s success was due to factors that some New Zealanders might find unpalatable.

“I personally think they have a very competitive economy and it’s very flexible as well. Their labour market is extremely flexible. You know, for example, my wife was working there and her contract was fire at will.

“If there was just a change in business needs, well, then that’s kind of how that economy operates. And there are some benefits to that, although there are also costs as well … but it does mean they can really generate some quite strong productivity growth. They’ve also got a lot of these big tech firms in there where there’s been some pretty exceptional things happen in that sector in the last few years, even in the last six or nine months despite things like Donald Trump turning up and really overturning parts of the economy.”