By Brian Fallow
WELLINGTON - Prime Minister Jenny Shipley's goal of a major lift in New Zealand's trend growth rate was more laudable than realistic, say economists.
Launching the Government's Five Steps Ahead (to the knowledge economy) programme yesterday, Mrs Shipley spoke of the need to raise the trend growth rate from its present 3 per cent to 5 per cent.
ANZ Bank chief economist Bernard Hodgetts was sceptical that the measures announced yesterday, which include a net $47 million increase in Government spending over four years, would go very far towards that goal.
"If it could have such a substantial impact, when all the economic reforms of the 1980s and 90s didn't raise the potential growth rate by anything like that much, it would be great value for money," he said.
Deutsche Bank chief economist Ulf Schoefisch said the two drivers of increased growth were population and productivity.
"The natural increase in the population is only about 1 per cent a year and I don't think we can bank on a large influx of immigrants.
"So we have to look at what the labour force has to work with - the capital stock."
To achieve Mrs Shipley's 5 per cent goal, productivity growth would have to be about 4 per cent a year, whereas it had averaged 0.5 per cent over the 1990s.
The United States had been able to achieve something like 4 per cent productivity growth lately, and perhaps temporarily.
But the New Zealand economy was very different structurally from the United States and less able to benefit from some of the technological changes which had underpinned the Americans' strong recent performance.
A more focused approach to state research and development spending would be a useful first step, Mr Schoefisch said, but the private sector's R&D spending was "pitiful."
Laudable but not realistic - economists
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