No easy growth boost - RBNZ

05:10, Feb 01 2013
wheeler stand
LIFTING GROWTH: There's no simple generic formula for raising growth rates, RBNZ Governor Graeme Wheeler says.

Improving New Zealand's productivity and competitiveness is critical to the country's economic prosperity, the Reserve Bank governor says.

In a speech to the Canterbury Employers' Chamber of Commerce in Christchurch, RBNZ governor Graeme Wheeler said there was no easy formula for boosting economic growth rates.

Like other small, commodity-producing economies, New Zealand's economic prospects depended greatly on the growth in world output and trade, he said.

IMF data suggested the global economy was expanding at an annual rate of about 3.25 per cent, or just below its average rate for the past three decades, though it did not feel like business as usual.

But Wheeler said there are ways to build prosperity in the longer term, and the Reserve Bank was committed to helping cement the foundations for this growth.

The bank was also watching the economic impact of the reconstruction in Christchurch.

Wheeler said that as well as ensuring price stability and reducing the risk of inflation surprises, the bank was strengthening financial sector regulation and supervision to promote a stable and efficient financial system.

Strong international demand for New Zealand's commodity exports would also help to build prosperity. However, we needed more investment to help with job creation and market development.

"Instead of welcoming foreign investment, we have one of the more restrictive frameworks among OECD countries," he said.

"We should re-examine the factors, including tax and regulation, that diminish and distort the incentives to both save and invest," Wheeler said.

Returning to fiscal surplus and lowering public sector indebtedness would also strengthen the economy's resilience and create more room for responding to future economic shocks.

Wheeler said improving education and employment outcomes, especially for Maori and Pacific Islanders, would also help to strengthen New Zealand's skill base, improve productivity, and reduce inequality.

On Thursday, at the RBNZ's update on the official cash rate, Wheeler fired a warning shot at the house price boom.

Economists drew attention to the bubbling markets of Auckland and Canterbury where prices are likely to keep rising in 2013.

The house-price inflation is helped by record-low interest and mortgage rates for homeowners.

On Thursday the Reserve Bank left the official cash rate unchanged at 2.5 per cent. It has been at that historic low level since being reduced by 50 basis points from 3 per cent in early 2011.

Wheeler on Thursday said the Canterbury rebuild was gathering momentum and its impact would be felt more broadly in incomes and domestic demand.

"House-price inflation has increased and we are watching this and household credit growth closely," he said.

"The bank does not want to see financial stability or inflation risks accentuated by housing demand getting too far ahead of supply."

Today in the prepared speech in Christchurch, he said there were many unknowns in regard to the RBNZ preparing forecasts for New Zealand.

"There are always many uncertainties, an important one right now being the economic impact of reconstruction here in Christchurch," he said.

"For example, how much investment will take place and how quickly, how will insurance pay-outs be used, how much employment is likely to be generated and where does it come from, and what cost pressures and bottlenecks are associated with reconstruction and how is the impact being reflected more broadly across the country?"

Wheeler said New Zealand's destiny lay largely in in its own hands, saying:

"There's no simple generic formula for raising growth rates, but the more prosperous countries and the economies that are growing rapidly all built strong linkages with the global economy."