Stuff - New version of capitalism coming, rural-urban bridges have to mend: Bagrie

New Zealand's economy is in a transition of old economic drivers stepping aside for a new "social-justice" version of capitalism.

The three big engines that had driven the economy - migration, construction and tourism - had peaked and would make way for a new version of capitalism, ANZ chief economist Cameron Bagrie said.

That form of capitalism would feature a higher level of government spending following tight controls in the National-led government, he told farmers and agri-business people at the launch of the 2017 Fieldays Economic Impact Report at Mystery Creek on Thursday.

 This was partly because of a push-back from voters after many felt they had missed out on the wealth generated the past few years.

"People are looking for a new version of capitalism, a social justice version. We don't know what that looks like. What we do know is that the social contract between society and politicians has been ripped up pretty well everywhere around the globe," he said.

New Zealand's economy is going through a big change, Bagrie says.

That contract was being renegotiated and there will be elements of this in the government negotiations taking place in New Zealand. Regardless of who formed a government, there was going to be change.

Bagrie said he did not know what that meant for the primary sector. There were issues around the environment and New Zealand's clean green image, water quality and the brand value of 'New Zealand Inc'.

For that change to occur, there had to be sector buy-in rather than being shocked into it, he said.

"That's going to be the big challenge in the next few years, taking people along for the ride.

"Society is asking for more and we have to mend those bridges between urban and rural New Zealand otherwise it's going to turn into a fight."

The strong medium term outlook for the primary sector and excellent terms of trade pointed to there being an orderly transition between the drivers.

New Zealand's terms of trade (the ratio of export prices to import prices) were at their highest level since 1973, and were on an upward trend, up 12 per cent. Every one per cent lift in the terms of trade was worth about 0.15 per cent of GDP growth.

As a result, New Zealand had about 1.8 per cent GDP growth guaranteed over the next few years from terms of trade as well as commodity prices. 

"The pleasing thing about those terms of trade is that it's a pretty broad-based story," he said.

It was not just about dairying, every sector apart from wool looked good.

"It's across the board strength and that's going to be a big economic tailwind for New Zealand over the next two to three years."

Imported technology, clothing and manufactured products had emerged as the new world commodities. Meanwhile, value added strategies around New Zealand's primary products were beginning to make an impact, he said.

"Those options were on the table for the government of the day. From about the second quarter of next year, there is going to be $600 million per quarter hitting New Zealanders' pockets and that's an economy injection of about 1 per cent of GDP."

While there was worrying political uncertainty globally, the world economy looked reasonably solid.

He saw "four potential horsemen of the apocalypse" that could change this: Global debt caused from low interest rates, changing demographics where the population was getting older, a fall in global productivity growth and the lack of "ammunition" to fire at the economy if it faltered.

"What do we have in the chamber if things go wrong to fire a couple of bullets at the global economy to pick it up? The answer is that the chamber is empty."

"We need quality economic leadership."

Politicians needed to step up and instigate change to make it easier to lift productivity growth.