graeme wheeler : improving new zealand ’ s economic growth speech by mr graeme wheeler, governor of the reserve bank of new zealand, to the canterbury employers ’ chamber of commerce, christchurch, 1 february 2013. * * * i ’ m conscious of george bernard shaw ’ s comment that “ if all the economists were laid end to end, they would never reach a conclusion ”. so i ’ ll try and be more of a one - handed economist in offering some thoughts on new zealand ’ s economic performance, ways in which it might be improved, and our role in the reserve bank. new zealand ’ s economic performance like other small, commodity - producing economies, our economic prospects depend greatly on the growth in world trade and output. imf data suggests that the global economy is expanding at an annual rate of around three and a quarter percent – or just below its average rate for the past three decades. but it doesn ’ t feel like business as usual. over the past two decades, the global economy has changed dramatically. asia is now the world ’ s largest economic region. its gdp at market exchange rates is about 15 percent higher than that of north america and 60 percent more than the euro area. china and east asia are the main growth poles in the global economy and emerging and developing countries accounted for 80 percent of global growth last year. among the advanced economies, growth prospects in the us are improving ( despite december quarter gdp ) but the recovery is the slowest for 70 years. japan is going through another weak patch, and the euro area is likely to be in a difficult recession until 2014, and then recover slowly. this, in spite of us $ 15 trillion of additional spending by the world ’ s governments in response to the global financial crisis and over us $ 5 trillion of quantitative easing by the major central banks. with official interest rates close to zero in the major advanced economies, investors continue to search for higher yields in countries with stronger growth rates, favourable commodity price outlooks, sound macroeconomic policies, and higher interest rates. as with australia, canada, sweden, norway and some asian and latin american countries, the ensuing exchange rate appreciation affects the growth of our import substitution and export sectors. i ’ ll return to this issue in greater depth when addressing the new zealand manufacturers and exporters association later this month. how have we fared relative to other advanced countries over the past two decades? since 1990 we ’ ve outperformed many oecd countries on inflation and unemployment. our inflation

than the foreign exchange market. during september – november 2011, the domestic yield curve tended to move up and to steepen slightly, but this movement was not continuous, as it was interrupted by downward shifts. in any case, interest rates for tenors of one year and longer remain below the maximum levels observed in the first half of the year. the relatively minor impact of the financial instability on mexico ’ s yield curve seems to reflect the high proportion of long - term bonds within foreign holdings of peso - denominated government securities. furthermore, during the last few months, the amount of long - term bonds held by foreigners increased slightly more than a reduction observed in holdings of short - term securities. the important role played by long - term investors in the government securities market seems to reflect their confidence in the sound management of public debt as well as the flexible exchange rate regime. two additional possible factors explaining the prevalence of contained long - term interest rates are a decline in projected economic growth, and stable and moderate inflation expectations in recent months. 4 during 2011, the mexican economy has continued a recovery process after surpassing, by the beginning of the year, the maximum levels of economic activity observed prior to the global financial crisis. indeed, gdp quarterly growth has been successively rising and, in the third quarter, the change in output was positive for each of the economy ’ s three sectors. on a year - over - year basis, gdp grew 4. 4 percent in the third quarter. the services sector, which accounts for about two - thirds of mexican gdp, was highly dynamic in the first nine months of the year, and particularly in the third quarter. this growth, along with extraordinarily high agricultural production, more than compensated for a slight deceleration in industrial activity in the third quarter. lower industrial growth reflected, notably, a slowdown in manufacturing production, which in turn responded to lower growth from mexican non - oil exports, particularly non - auto products, to the united states. apparently, a slowing of manufacturing production in the united states had an almost instantaneous impact on mexico ’ s manufacturing production. october data on foreign trade suggests that this deceleration has probably continued in the fourth quarter of 2011. domestic demand, as reflected by retail sales and investment, continued showing high rates of growth, although investment levels remain below those observed before 2008, mainly because of a virtual stagnation in the construction industry. retail sales growth seems to have been fueled by a recovery in employment, real wages