Bernard Hickey is the Managing Editor of Newsroom Pro based in the Parliamentary Press Gallery.

real economy

The export target that went AWOL

The Government's once-central target of lifting exports from 30 percent of GDP to 40 percent of GDP by 2025 has gone missing in action in recent months with little progress seen after nearly eight years in power and senior ministers quietly stopping referring to it.



Early in the current Government's first term, then Finance Minister Bill English talked a lot about the economy's inability under the previous Labour Government to grow exports as a share of the economy.

He made a point of showing a chart that compared the performance of the tradable sector of the economy - the parts exposed to international competition and prices - with the non-tradable sector in recent decades.

It showed the tradable sector, which includes exporters and those that compete with imports, essentially flat-lining since around 2004. English argued the economy needed to be reformed to focus on growing exports.



That argument was a central part of the Government's Business Growth Agenda, which was announced in 2012 as a suite of policies aimed at significantly lifting economic performance. The 'Building Export Markets' part of the Business Growth Agenda set a target of lifting the export share of the economy from 30 percent to 40 percent by 2025.

"It is only through exporting that New Zealand, with a small domestic market, can deliver the growth and productivity required to enhance the wealth of our country and create more and higher paying jobs," English said in August 2012 in the first progress report on the Business Growth Agenda.

The initial signs through 2011 and 2012 were positive as the effects of the slump in the New Zealand dollar during the Global Financial Crisis helped exporters and the housing market was flat to falling through 2009 to 2011.



But in the five years since 2012 the export share of the economy has continued to stagnate, and in some periods has actually gone backwards.

The Government has stopped formally trumpeting the 40 percent export share target in recent months and its last progress report on the Building Export Markets part of the BGA was published in September 2015.



That showed no improvement since 2005, using both an older data series and a newer data series that used a lower starting point.



Treasury's own measure of the tradable vs the non-tradable sectors also shows no real progress since 2015. It produces the chart monthly as part of its monthly economic indicators series.



The Government under now-Prime Minister Bill English and new Finance Minister Steven Joyce has also stopped talking about the target in their flagship policy announcements.

English launched what he described as an ambitious Trade Agenda 2030 policy on March 24 that made no mention of the target.

Instead, he focused on a target of achieving Free Trade Agreements that covered 90 percent of New Zealand's exports, up from 53 percent in 2017.

Labour's Trade Spokesman David Parker picked up on the non-mention of the target, describing new target as another "meaningless promise on the never-never".

"His grand ‘Trade Agenda 2030’ document has not a single reference to any goal of lifting exports as a percentage of GDP. That ambition has disappeared," Parker said at the time.



Joyce also made no mention of the target export share of GDP target in his economic 'State of the Nation' address on February 16.



Asked about the missing mention of the target afterwards, Joyce said he was still feeling positive about achieving the target by 2025, which was still eight years away. The speech focused instead on Auckland's infrastructure issues and a defence of an open economy.



"I'm feeling pretty good about it in terms of the gearing up and the strength of New Zealand exporters and the changing composition," Joyce said on the day about whether the target would be achieved.



"Because it's maintained its shape pretty well despite the tough times in dairy in the last couple of years, so watch this space," he said.

So why hasn't it improved?

The economy has been more focused on domestic activity since 2012 as the Canterbury earthquake rebuild kicked in and a significantly over-valued exchange rate from 2014 onwards hampered the export sector.



Since 2014, the construction boom in Auckland has also bolstered the domestic part of the economy, along with a retailing and consumption boom linked to the surge in local incomes, net migration and house prices. Dairy prices were also weak until this year.



The picture is even more dismal on a per capita basis, as shown in this series charted by by independent economist Michael Reddell, who used to work at the Reserve Bank.



Reddell said in a blog post last week there had been no growth in real per capita GDP for 17 years.

"A year or two ago, it looked as though some sort of rebound was underway – all those tourists and foreign students – but even some of that growth has been reversed in the last few quarters," Reddell wrote.

"Successful economies – ones that catch up with the leaders, which record strong productivity growth – tend to be those with relatively fast-growing exports, and strongly-performing tradables sectors," he wrote.

The high New Zealand dollar is often cited, particularly since 2014 when the Reserve Bank put up interest rates prematurely and interest rates overseas were cut to almost zero.



"A reasonable interpretation of what has gone on is that whatever factors led to the exchange rate being so persistently high – since around 2003/04 – will have accounted for the weak tradables sector performance."