Listener 1 August 1998. by Brian Easton
The Governor of the Reserve Bank finished a recent speech with “the
sharp downturn in may of our export markets may well turn out to be the
most serious shock to it the New Zealand economy since the oil shock of
the seventies.” Here is a summary of the main shocks and recessions over
our economic history.
The traditional Maori economy did not suffer recessions, because it
was a barter economy isolated from the world. There were harvest booms
and slumps because of supply changes, but not demand driven
fluctuations. European contact brought a monetary economy and
international trade, which affected the barter economy. The Maori
planted crops to provision visiting whaling and sealing ships. In some
years Northern Hemisphere monetary tumult meant the shipowners could not
afford to send them, and the commercial crops wasted.
Perhaps New Zealand was born in depression for Australia, from whence
it was first governed, was depressed in the 1840s. Most early
settlements initially struggled, although Canterbury was fortunate
because of the 1850s Victorian gold rush. Local gold rushes and the land
wars gave prosperity in the early 1860s, but by the end of the 1860s
the national economy was in recession. The 25 year “Long Depression”
lasted until the early 1890s. There was a speculative boom in the 1870s
from Vogel’s borrowing, which ended following the collapse of the Bank
of Glasgow in 1878, when the London market withdrew its colonial
investments. There were, as there are today, regional differences.
Auckland was hooked into to the Sydney economy and struggled along a bit
longer, but by the late 1880s New Zealand was thoroughly depressed.
Prosperity returned in the 1890s as overseas prices recovered, and
frozen meat (and later dairy products) exports developed. The expansion
phase of the boom lasted to the mid 1900s, and then slowed down,
resulting in industrial strife such as at Blackball in 1908 and Waihi in
1913. Growth continued through the First World War but it was with
world induced inflation.
Immediately after, import prices rose sharply, triggering a sharp
(but mercifully short) contraction in 1921. The 1920s were a period of
sluggish growth because of poor export prices. They crashed at the end
of the decade precipitating the “Great Depression”. The downturn was not
as deep as in 1921. But was longer and after a period of stagnation, so
the earlier pain is largely forgotten.
Thereafter New Zealand had its greatest period of sustained growth: a
strong expansion phase in the decade from 1934 when volume GDP grew at 7
percent p.a. (comparable to 1980s East Asian growth rates), followed by
20 years averaging over 4 percent p.a., (with cyclical ups and downs).
A major factor in sustaining this high growth rate was good prices
for New Zealand exports. The 32 year boom ended in late 1966, with the
collapse of wool prices. New Zealand then went through an 11 year
transition phase of slow growth and rising unemployment, obscured by the
world commodity boom of 1972 which burst in the 1973 oil price shock.
Financial markets collapsed (as they do about once a decade) but not as
noticeably as in 1987.
The world economy grew slowly from the mid 1970s, and by 1978 New
Zealand was growing faster, continuing to do so when the world economy
expanded in the early 1980s. The New Zealand boom ended in 1985, as the
real exchange rate rose, cutting off export expansion. Fortunately the
world continued to grow, so what could have been another long local
depression was only a recession. The new National governments spending
cuts in 1991 generated the sharpest contraction in the postwar era. But
in 1992 New Zealand at last hooked into a world growth boom. It lasted
about 5 years, the third longest post war boom. It ended in early 1997,
and the economy has been struggling since, with some sectors and regions
doing well, others in difficulties.
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