EXCLUSIVE: Economic Outlook: Growth or Slowth?



New Zealand’s latest economic growth figures – 3.3% annual – were released on Thursday (19 March).

If the economy is servant rather than master, it is improved living standards that matter, not output growth. The two may of course coincide, at least for some of history.

Productivity growth – an increasing ratio of outputs to inputs – is a necessary but not sufficient condition for a general increase in living standards. Economic growth, however – measured as a simple annual increase in real GDP – is neither a necessary nor a sufficient condition for improved living standards. Having said that, sustainable economic growth is not an oxymoron, and is better than both unsustainable growth and unsustainable slowth.

There’s a gap in the language of economic growth cycles. For a country like New Zealand, annual growth in excess of three percent is called ‘expansion’. Growth between two and three percent is ‘steady’, meaning that (given the present relations of production) unemployment neither rises much nor falls much. Although growth below zero is called either ‘contraction’ or ‘recession’, when teaching I use the term contraction for anything less than steady. (This helps students to understand expansionary versus contractionary policy settings. New Zealand presently has contractionary fiscal policy settings and steady monetary policy.)

In this article I will substitute the word ‘slowth’ to mean anything below two percent, including recession.

The latest annual growth rate at 3.3% is the highest since 2007. And it is likely to be close to the highest this decade. There is an investment cycle of around 10 years – one early neoclassical economist [Jevons] famously correlated it to sunspots and aurorae – that has generally persisted in western capitalist economies for 200 years or so. New Zealand growth rates in years ending in ‘4’ or ‘5’ have often been among the highest for each decade, with growth rates in years ending in ‘8’ being near the lowest.

Ten years ago the growth rate was 4.0%, twenty years before it was 5.4%, and thirty years ago (in “basket‑case” 1984) it was 4.5%. The average growth rate since 1978 of the years ending in ‘4’ has been 4.3%, significantly above the present 3.3%. If one corrects for population growth, then per person, this is even lower than it seems. It is the lowest mid‑decade growth rate since World War 2.

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If we look at end-of-decade ‘9’ years, then growth was 1.7% (1979), 0.0% (1989), 4.3% (1999), and -0.6% (2009); an average of 1.4% compared to the 4.3% for the ‘4’ years. The ‘8’ years were worse, all below 1.0%.

If we average-out the last 10 years we get 1.9% average (‘slowth’ for sure, below 2%), 3.6% in the decade to 2004, and 1.6% in the Roger and Ruth decade. The present series (from 1978) doesn’t give a full picture of the Muldoon years, but annual growth in the half-decade to 1984 (in very difficult international times) was 2.9% per annum, pretty-much bang on today’s 3% target rate. (Slowth came post-Muldoon, of course, with 1.2% for the late 1980s’ half-decade and 0.0% for the five years ended December 1992.)

Where to from here? Economic growth above 2% in the United States and United Kingdom; continued expansion in China and other emerging economies in Asia may keep New Zealand firing on all three cylinders for two or three more years. More of the same; including stimulus in the domestic services sector arising from household borrowing ‘secured’ by inflated asset values.

Meanwhile, global business debt, the presumptive engine of world growth in productive capacity, continues to stutter. Credit – fuelled by high corporate savings and inflated household balance sheets – is being aggressively channelled instead into unsustainable asset inflation. All the signs are that the coming ‘8’ and ‘9’ years will be years of slowth; indeed unsustainable slowth. Unsustainable practices are driven by desperation as well as by short-sighted greed.

My figures show 2.9% less growth on average in a ‘9’ year. That’s 0.4% growth in 2019. A drop of 4.5% – as in the 1980s and 2000s – means a nasty 2019 recession of -1.2% growth. 2015 may be as ‘good’ as it gets.


  1. Keith, as a centre left moderate I say;

    Bloody good detailed forecast and excellent computation of past historic growth stats thank you we appreciate this window on the swings and lulls over those years.

    Amazingly the surprise was the partial growth figures you did show during the Muldoon years.

    But when we put Muldoon alongside Key/Englsh National years of hard right austerity of selling every asset English/Key can get hold of then with Muldoon as a more moderate right wing National brand then we should be surprised that Muldoon’s years were not that bad as the media then portray them as before the terrible Rogernomics era.

    So moderate right wing policies worked better then this current mob did and we hope the idiots that are currently wrecking our country sit up and take note of your very informative expose’ of our rise & fall of our economy during the past 40 odd years. Well done Keith.

  2. When are we going to have the “end of growth” conversation, we are very close to the time that we must address this, in fact I think we are there.

    There is ONLY ONE thing that growth relies on and that is an ever growing human population and now that we are more than twice the number that many of us believe the planet can sustain, then we must stop talking about growth and start talking about how people can prosper without it.

    We either have this conversation, start sorting out how this will work, or we (or more likely our kids and grandkids) are looking down the barrel of catastrophe as we turn to violence to get our share of dwindling resources, including that most important of all, water.

    • While my figures here are for ‘extensive growth’, most historical growth analysis focuses on ‘intensive growth’, which is growth per person. By definition, such growth (which is real), is growth per person. So population growth cannot be the only source of economic growth.

      The two most important sources of intensive growth (which is one form of productivity growth) are (1) the depletion and (2) the augmentation of resources.

      Depletion driven growth arises from such things as consumption of non-renewable resources, failure to account for environmental damage, and working longer hours. Augmentation driven growth arises from improved knowledge, technology, ethics; and sunk capital (eg infrastructure and education). Generally augmentation growth is sustainable, although subject to diminishing returns (especially infrastructure, which may simultaneously augment and deplete).

      Generally the discussion about sustainable growth should focus on inputs, not outputs. Though there is another important dimension, and that’s about the forces that push too many of us into ‘wanting’ things we don’t need and may not really want.

      The conversation about population is important. But there are other conversations we need at least as much.

      • Agreed Keith, but all we have at the moment is population growth, the smoke and mirrors that this present govt uses to fool people, who are demanding growth without so much as a thought to what that means

        • You say, Raewyn, that “all we have at the moment is population growth”. In fact, across the world over the ten years to 2014, economic growth averages 4% per year, while population growth averages 1.2% per year. Thus The world economy has grown 2.8% per year by official measures.

          If you discount the official measures, and claim that economic growth was really 1.2% per year, then the ‘problem’ of economic growth may not be as bad as many think. This is I think your point, that we have unsustainable slowth rather than unsustainable growth. And what you want is sustainable slowth. It’s achievable (and with productivity growth keeping input use in check), but only once we distribute income equitably, and that will only happen when enough of us embrace the concept of public equity.

      • “But there are other conversations we need at least as much. ”

        Might you list the first five of these conversations – and those who could contribute?

        If these are essential conversations then when do they become part of general conversations?

        Not the partisan proclamations of academics and others with specific agendas. More the conversations that inform and include those who are usually asked to ‘trussst usss. We know what’s best for you.’ The rare conversations…

        Perhaps a follow-on ATL piece, in due course?

        • Just a quick response. We need alternative conversations about productivity, labour supply, income distribution (not redistribution), the creditor-debtor relationship, and global governance (which includes the taxation of global business activity). As many people as possible should participate in these conversations, and by reaching out to people with different perspectives; we’ve had more than enough partisan stand-offs.

          Generally, being an ‘academic’ in the truest sense if that word means you don’t have an agenda. Of course many people employed in universities etc are not disinterested in this way. It’s confusing really because academics must be very interested in one sense of that word (opposite of uninterested) but not in the other sense (opposite of disinterested).

    • Yes Raewyn that is to intelligent for the Politicians who are chasing every opportunity to make a buck “on he side” while the idiots are standing on the burning debt.

      Keith it is a clear picture that we are on the edge of a cliff and about to descend again.

      As we heard today on TV the US fed is considering jacking up the interest rate finally, and suggesting another round of “Quantitative easing stimulus” (Printing money”) to again prop up the banks and insurance industry, their mates of course.

      We are slipping down that slippery slope already we fear, and a real depression could only be months away.

  3. Heh….a cursory look at the general health of society 35-40 years ago in terms of relative financial well being as compared to the unheard off social decay and problems we have today are all we need to see how neo liberalism has gutted vast numbers of people in this country.

    A Social democracy with an adapted – for – modern – conditions Keynesian economic model is what is needed.

    And while we’re at it?…..vote for Winston Peters.

  4. I hate to say this but I think this analysis is bunk. To have any meaning it depends on a cycle that coincides EXACTLY with a ten year cycle. Why ten years? Because we use a decal counting system? Which we use because we have ten fingers? Supposing we had only eight fingers, the numbers would be just gibberish. Is this what economics has come to?
    PS: Raewyn Scott is right. Exponential population is the elephant in the room that no-one talks about and will bring civilisation to an end soon, perhaps within 20 years.
    If so called economists will step back from their computers for a while and look at the real world they will see that the big news these days is the rampant movement of refugees, leaving their homelands for a variety of reasons; war, lack of drinking water or food etc. And our country , in panic, is closing the doors as are many other nations. If that is the situation now with seven billion people on earth, try to envisage a population of twice that number. Advocating growth under these conditions is utterly irresponsible.

    • A lot of truth Dennis but these Politicians are not thinking outside their orders from overseas power brokers who Key is hooked up to and driven by.

      He is controlled by Bilderberg and cannot reverse his or Bilderberg’s instructions of how to run our economy.

      Who is Key borrowing $300 Million a week from?

      Bet the agreement was made through Bilderberg for key’s loyalty to their economic directives he must follow.

      Key attended 2011-12 Bilderberg secret meetings.

      List of Bilderberg participants 4
      New Zealand
      • John Key (2011-2012), Prime Minister of New Zealand


      List of Bilderberg participants – There Are Save Two Churches Only


    • Nobody is arguing that there is a regular cycle of exactly 10 years. But the average length of the ‘Juglar’ cycle is about 10 years. If you look at NZ, there is no question that the ‘8’ years have had the lowest annual growth rates, and the ‘4’ years have among the higher rates.

      It is hard to get good global data going back, but 1981, 1991 and 2001 were all global low years. Further back, 1921 and 1931 are also known to have been amongst the lowest of the lows. NZ growth fluctuations historically have been out of phase with the global cycle. That may have changed since 2008. My gut feeling is that 2019 (or thereabouts) will be a global and a New Zealand cyclical trough.

      As well as the Juglar cycles, short inventory cycles show up at around 2.5 to 3 years, and long-wave cycles have often been claimed for a period of around 50 years (ie two generations).

  5. It is probably no coincidence that the recession forecasted will coincide with there being a Labour Government elected as a result of the nine year electoral cycle when the electorate have had enough of the current government.

  6. To me the definition of “exactly” is pure semantics. If data is compiled quarterly, a pattern that coincides on an annual scale is exact enough for me. If this cycle is not a figment of economists’ imagination it would seem that the cycle is an inevitable outcome of the present monetary system and cannot be changed without changing the system itself.
    The system is effectively on automatic pilot and all the Reserve Bank’s and the Treasury’s manipulations are futile. Similary it doesn’t matter if we are at war or peace,or have a conservative or socialist government. The outcome is apparently preordained.
    It might be worthwhile asking what it is that creates this apparently inevitable cycle. It would not be hard to surmise that the cycle is caused by greedy and over-optimistic banks pumping up a boom to boost their profits, and the economy turning to custard when the predictable stock market crash follows. If the cycle by chance is of about 10 years that is of purely academic interest. It is more important to fix the problem by stopping the banks from creating our money supply to use as if it were play-dough.
    Incidentally you make much of the fact that years ending in 1 were ‘global low years’. 1921 was a stock market crash year I believe; 1931 was in the depths of the Depression; 1941 was at the low ebb of WW2, which should mean something; 1981 was at the low point following the 1978 Savings and Loans debacle; 2001 was the Dot.com stock market crash, if 2011 was low that is all I would expect after 3 years of National Party rule.
    You may claim that this only confirms your data. More importantly it shows who to blame for these real events. The banks were obviously complicit in nearly all of them.
    Perhaps economists should stop reading tea-leaves and look at the real data.

    • Who pays the ferryman ?…..or who shall pay the piper to rid us of all those dang rats?

      Who set this all up in the first place?

      Where the hell is the ‘City ‘ in London?

      Are Rothschild and Rockefeller nice dudes?

      Did Adam Weishaupt like Halibut for breakfast?

      Hell – I dunno – who even wrote this song ,anyways?

    • Economic activity will always have cycles (or at least fluctuations) just as the sea will always have waves. The main point of my article was that we should interpret our latest growth data with an awareness of where we are in the cycle.

      Are cycles good or bad? Probably a bit of both. Positive dynamics may be stifled if you have 100% stability and 100% equality.

      Economies, like ships, should have good stabilisers. Since 1985 we have been actively disabling the fiscal stabilisers put in place from the 1930s. Further, since 1985 the political Left has largely sat back and let it happen, not sufficiently participating in conversations with ‘the other side’.

  7. Does GDP “growth” take into account inflation and debt? Surely whenever new debt is issued, this new “money” is chasing the same number of goods and services which instantly must result in inflation of those goods and services. I would argue this isn’t “growth” at all – e.g. if the government were to double the monetary base, we would see instant “growth” of 100% in GDP, but this is obviously not real growth. Sans debt and inflation, what has been NZs real growth been over the last 30 years?

    • QE did involve a near doubling of the money supply, but it all went to rich people who barely spent any of it. That is why there was no great inflation, money has to be spent on goods and services to cause inflation.

      Stocks and property are way up though, but that doesn’t “officially” count as inflation (in the CPI).

      • You are right. The very things, property and stocks and shares, that have a strong bearing on inflation are ignored in the inflation calculations. Interestingly, there is not just one inflation value. I hear that there is such a thing as ‘headline inflation’, which is the price inflation you see in your daily purchases, and also ‘underlying inflation’ which is headline inflation less inflation caused by the interest components of loans. This is an admission that interest rates do cause inflation but no one ever tells you that. I am told that this component of headline inflation is considered to be between 1 1/2 to 2%, which probably explains why the RBNZ tries to keep inflation within those bounds, rather than the more obvious 0%.

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