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As goes New Zealand, so goes the world?
The land of the long white cloud has enjoyed a 10-year economic boom driven by exports of milk, butter and cheese, a population riding a housing market boom and tourists eager to sample the landscapes depicted in Hollywood films such as The Lord of the Rings.
But New Zealand is on the cusp of a downturn and risks seizing the dubious honour from the US of becoming the world’s first developed nation to sink into recession, as measured by two consecutive quarters of negative gross domestic product growth.
GDP numbers for the January-March quarter due this month are forecast to show a contraction of at least 0.3 per cent. TD Securities and other economic forecasters are predicting a 0.2 per cent decline for the April-June quarter.
Here is more information. Elsewhere in the Commonwealth, one UK supplier is now charging $14-15 a gallon ($18 for a UK gallon) for gas, he wants to make sure his customers can always get the product.
Posted by Tyler Cowen on June 17, 2008 at 06:50 AM in Economics | Permalink
Comments
Elsewhere in the Commonwealth, one UK supplier is now charging $14-15 a gallon ($18 for a UK gallon) for gas...
...and simultaneously becomes a huge target. That's not how you make sure product is retained. You work with the strikers to address their concerns. Also, you make sure gouging is off the table.
Otherwise, he may end up angering law enforcement as well.
Posted by: sethstorm at Jun 17, 2008 1:35:46 PM
I do not understand the chagrin against high prices for petroleum products. Supply has remained constant for the better part of two decades now, since the supply boom caused by the oil shocks of the '70s leveled off after the oil price crash of the early '90s. At the same time, demand (especially from the developing world) has skyrocketed. You don't even need to be an economics student to figure out the effect: higher equilibrium prices.
Posted by: quanticle at Jun 17, 2008 2:57:36 PM
Can't we get away from using the meaningless definition of a recession being two quarters of negative growth in real gdp. The standard definition of a widespread decline in economic activity provides a much better understanding of what a recession implies. A recession is suppose to be a period of hard times for a wide swath of the economy and population and this two quarter definition does not convey that implication.
Posted by: spencer at Jun 17, 2008 3:29:31 PM
I think perhaps consumers in the UK have gotten so accustomed to tacit collusion on prices (in which all suppliers charge the same, near-monopoly price) that they view any price increase as "gouging" -- and they're outraged that they might need to switch their custom to another vendor, rather than the closest one to their house. That's apparently just not done.
But the onus is on consumers to search, not suppliers to fall in line with the market price. Searching a little gives suppliers an incentive to cut prices to earn your business. Failing to search at all gives 'em monopoly power; why cut prices if demand doesn't reward it?
I agree with Prof. Hartford -- anyone who deviates from the collusive price (up or down) deserves a medal.
Posted by: AGMycroft at Jun 17, 2008 4:03:47 PM
Quanticle doesn't understand the chagrin against high prices, but then states a bromide that I find the most puzzling of all.
Has demand for oil from the developing world *really* shot up 100% in the past year alone? Does anyone find that explanation the least bit plausible?
Posted by: meter at Jun 17, 2008 4:04:25 PM
Meter
You're ignoring the fact that there's no law stating that prices have to fluctuate linearly with demand. In other words, is it not possible that we "maxed out" our supply last year, leading to persistent shortfalls that have to be corrected for with price hikes?
Posted by: quanticle at Jun 17, 2008 4:32:17 PM
What can I say, in New Zealand we always try to be global leaders in whatever we do :P
It is also important to remember that one of the primary reasons we are falling into recession is because we have just experienced a significant drought - not because of the slowdown in global economic activity.
In fact our terms of trade keeps rising even with higher fuel prices - indicating that the global economy is currently holding us up, instead of driving the current slowdown.
Posted by: Matt Nolan at Jun 17, 2008 5:42:42 PM
Can't we get away from using the meaningless definition of a recession being two quarters of negative growth in real gdp. The standard definition of a widespread decline in economic activity provides a much better understanding of what a recession implies.
So how, precisely, do you intend to measure this widespread decline in economic activity?
Posted by: Tracy W at Jun 18, 2008 9:38:12 AM
"So how, precisely, do you intend to measure this widespread decline in economic activity?"
I bet it's about 'feelings'. ;)
Really though, without a definition it is meaningless.
Posted by: tom at Jun 18, 2008 9:56:05 AM
meter,
It's inelasticity of supply and demand for fuel. To say it another way, the cheap sheiks/Chavez's output has been maxed out awhile ago and a new barrel of oil on the market now comes from very expensive sources, at least in the short term.
spencer,
What you're describing is not a recession but more "not crazy growth." You could maybe use the period between inflection points as what you're describing.
Posted by: MW at Jun 18, 2008 11:29:37 AM
Has demand for oil from the developing world *really* shot up 100% in the past year alone?
Sigh. Demand can't exceed supply. What happens when demand outstrips supply at what is the current price?
The answer is that the price keeps rising until enough demand destruction occurs for the market to achieve a new equilibrium.
There is a monstrously huge shortage of oil at $20 per barrel. There is no shortage at current market prices which are about $135 (give or take) per barrel.
When prices soar it simply means that new demand is growing faster than new supply at the previous price(s). More and more people who are escaping poverty in the world, and that isn't going to stop for perhaps a couple of generations.
This means there are only two possible ways we'll ever see cheap oil again, assuming no WWIII. First, we can continue finding and bringing to market new oil to market to more than meet demand at current prices.
The second possibility is either a cost effective oil substitute comes online in volume, or a cost effective substitute (or significant improvement) to the internal combustion engine comes along.
Posted by: happyjuggler0 at Jun 18, 2008 3:55:03 PM
