Context
New Zealand is an island country in the South Pacific Ocean which has a population of around 5 million people. Over the last 30 years, New Zealand’s economy “has gone from being one of the most regulated in the OECD to one of the least regulated, most free-market based economies.” With exports accounting to 30% of its GDP, New Zealand has an internationally competitive and very export-driven economy dependent on its exports of agricultural products and has been expanding its trade relations over the past 50 years.
GDP Analysis
From 2010-2020, New Zealand’s nominal GDP and real GDP have been unstable; its real GDP experienced increases from 2010-2014 and 2015-2018 and decreases from 2014-2015 and 2018 to 2019.
Real GDP per capita continuously increased from 2010-2014 succeeding an unprecedented reduction of 13.5% from 2014-2015 resulting from a recession in New Zealand’s real GDP in the same year. The percentage change in the real GDP should be the same as the percentage change in the real-GDP per capita. This may have resulted in a decrease in consumer spending, decrease in production for firms, lower employment rates, and other economic activities that may have led to a decrease in the overall wellbeing of New Zealanders. Real GDP and real-GDP per capita continued to increase from 2015-2018 before experiencing another recession and a decrease in real-GDP per capita of 0.48%. This may have not led to much drastic changes in the economy, but its negative externalities may have affected low-income households more significantly.
Table 1: Nominal GDP, Real GDP, Real GDP % Change & Real GDP per capita.
Source: The World Bank
https://data.worldbank.org/country/new-zealand
Figure 1: Real GDP per capita (plotted on MS Excel)
Extension Exploration GNI Per Capita Analysis
Table 2: New Zealand’s GNI and GDP 2010-2018
Source: The World Bank
https://data.worldbank.org/country/new-zealand
GNI per Capita Analysis:
GDP is the total market value of all final goods and services produced in an economy in a given period of time. GNI, on the other hand, is the total income earned by a country’s factors of production regardless of where the assets are located, in contrast to GDP, which only includes production which takes place on the country’s land. Net income from abroad means that income earned by factors of production by non-nationals in the domestic economy is deducted, while income earned by factors of production outside domestic territory and owned by nationals is added.
GDP per capita is consistently around 2.5% higher than GNI per capita. This may stem from there being a sum of overseas workers working in New Zealand and international assets based within the country. This makes GNI arguably a better indicator of wellbeing, when comparing both GNI and GDP.
Widening the lens (looking back at GNI growth since 1990)
Figure 2: GNI per capita growth (WorldBank)
Data Source: https://data.worldbank.org/indicator/NY.GNP.PCAP.PP.CD?locations=NZ
WorldBank has a graph Note that 2020 data is not yet available here. However, I found that GNI per capita had actually been increasing year-on-year (this is shown as annual growth above 0%) not just since 2010, but all the way back to 1991.
New Zealand’s Big Mac Index
The Big Mac Index was introduced by The Economist in 1986 as a way to measure the purchasing-power parity between two varying countries’ currencies. It tests the idea that in the long run, exchange rates should move towards the rate that equalises prices in different countries by looking at the McDonald’s Big Mac burger as it is available in most countries around the world.
Taking into account the “varying labour costs, barriers to migration, and trade” that may undermine the purchasing-power parity, the Big Mac GDP-adjust index predicts what the actual prices of Big Macs should be depending on a country’s GDP per capita. “The difference between the predicted and the market price is an alternative measure of currency valuation”(The Economist, 2021)
In relation to New Zealand, according to The Economist, as of January 2021, the “New Zealand dollar is 4% overvalued against the US dollar”; however, “a Big Mac costs 14% less in New Zealand (US$4.87) than in the United States (US$5.66) at market exchange rates.” This comes to show that even if the value of New Zealand’s currency is higher than that of US's, the factors of “varying labour costs, barriers to migration, and trade” may have highly influenced the result. Furthermore, the US has a much higher GDP per capita in comparison to New Zealand with the UNited States having real GDP per capita 42.8% higher than that of New Zealand’s.
Figure 3: Overview of the GDP-adjust Big Mac Index for New Zealand 2011-2021 (The Economist)
Data Source: https://www.economist.com/big-mac-index
As of the 12th of January, based on differences in GDP per person, a Big Mac should cost 17% less suggesting that the dollar is 4.1% overvalued.(The Economist, 2021) This figure implies that the value of New Zealand dollars have been unstable in the past 10 years — experiencing a shifting increase and decrease in its value.
Sources:
https://www.newzealandnow.govt.nz/invest-innovate-in-new-zealand/nzs-business-environment/economic-overview
https://www.stats.govt.nz/topics/population
https://www.britannica.com/place/New-Zealand
https://www.stats.govt.nz/indicators/gross-domestic-product-gdp
https://data.worldbank.org/country/new-zealand
https://www.economist.com/big-mac-index
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