New Zealand has been having some issues, with a 1% economic contraction and roughly 80,000 people leaving the country. What does this mean for one of my favorite countries?
New Zealand is a service-driven economy, but its two key industries – tourism and agriculture – are facing some challenges. The weak Kiwi dollar is great for tourists, but its straining local affordability. The dairy sector may be the most efficient in the world, but a collapsing China will cause major issues for exports.
While there are some hills to climb, it’s not all bad news bears. The Kiwis have stronger demographics than other developed countries and New Zealand could be a haven for skilled workers looking to escape collapsing or struggling countries.
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Hey everyone. Peter Zeihan here coming to you from the Queen Charlotte Walkway. That’s the king of Peru sound behind me. And today we’re going to do something that all my Kiwi followers have been screaming for for the last few weeks, which is, you know, do one on New Zealand already. So here we go. New Zealand’s in a bit of a recession right now.
Contracted about 1% in the last quarter that we’ve got data for, which doesn’t sound like much, but that’s like half as bad as what happened during, say, the subprime crisis in the first year. So, you know, it’s if this was in America, we would all be freaking out. And, so let’s look at the economics, let’s look at the demographics, and then let’s talk about the context.
So first, the economics, the, the, Kiwi economy, much like everybody else in the first world, is largely services driven. But the two more dynamic sectors in here are agriculture and tourism. Tourism participant has been driving up prices because we’re in a situation right now where the Kiwi dollar is the lowest it’s been in quite some time, which is it for me, but it means lots of people come in and consume lots of things that the locals otherwise would, housing an especially short term in rental housing.
Sorry. Not sorry. Driving up the prices for everybody else. When you have a situation like that, people get a little antsy. And, because the currency is weak, they’re getting more business, but earning less for it. It’s a little stressful, and people tend to leave. And so 80,000 Kiwis left last year, which, again, doesn’t sound like a lot, but this is a country of only 5 million people.
So you’re talking about losing basically a quarter of the percent of your population in one year? The only California’s worse than that, of course.
Anyway, that’s a lot to lose in one year for a country, primarily young and skilled people. Their destinations tend to be Australia, the United States, the United Kingdom, in that order. You go to places where there are jobs.
It’s just that simple. Okay. Anyway, tourism, obviously something that it works very well here at the wine is good, the food is good, the land is good. It’s just a beautiful place with wonderful people. But if you’re doing more and earning less for it, you can see how that can be a problem. Second big sector agriculture.
Huge, new Zealand is a primarily volcanic soil, and many of the volcanoes are still active. I hiked on two of them earlier in this trip. And it’s, positioned where the local wind currents bring it. Lots and lots and lots of moisture. In addition, it is surrounded by relatively cool water oceans. You put that together and you never have a hot summer, and you never have a cold winter.
And fertile soil, plus lots of water. Anything can grow, and I mean, anything can grow. So the New Zealanders have some of the lowest cost of production per unit for agricultural products in the world, and only have 5 million people. So they can focus on quality, they can focus on value add. And the sector that has seen explosive growth over the last 4550 years is dairy.
Once the Kiwis left being part of the Imperial network that the Brits had built and went into business for themselves, they switched almost wholesale from things like sheep to dairy because they just have a huge competitive advantage. They never need enclosures. They never need shelters in the winter or the summer, and they can just rotate the cattle around, always giving them fresh food.
Only in the last few years have they started growing corn themselves to use a silage to increase their productivity even more. But even before they had done that, New Zealand dairy was generally considered the highest in the world in terms of quality and could be produced, at the lowest cost of any dairy in the world.
In fact, they have about a 30 to a 40% price advantage over the country. That’s in second place in terms of efficiency, and that’s the United States. And we only do that with massive enclosures and sheer numbers and lots and lots of, inputs, such as silage, in order to make the cows grow quickly and produce a lot, the Kiwis don’t have to do that.
They’re starting to. Which means there are additional efficiency gains to be gained. And you should expect both tourism and agriculture, especially dairy, to continue to grow in percentage terms that are just not possible anywhere else in the world. And yet, 80,000 people left, were experiencing here the tail end, the final days of the China boom. As the Chinese demographic situation completely implodes.
And there’s a combination of political incompetence at the top of the Chinese system and globalization and trade pressures from the wider world basically break the Chinese system and dissolve the country as a functional entity. Everyone who sells to China is enjoying these last few years were basically at the top of the bubble, and then that market just goes away.
And that’s going to hurt the new Zealanders as much as it’s going to hurt anyone who sells into that market. And we will have to have an adjustment in production capacity around the world. Now, countries like New Zealand, where the efficiency is through the roof, are the ones who will come out of that in the best place.
They’ll push the higher cost producers like, say, the Brazilians and the Russians out of the market in places where they compete. And we’re going to see that in industry after industry after industry moving forward. Okay. Let’s talk about the people.
New Zealand has the highest birth rate in the rich world and the highest birth rate in the advanced developing world. Better than India, better than Mexico, better than Turkey, better than Indonesia. Is one of the very few countries in the world where the cost of living for young parents is sufficiently low, and the availability of suburban and rural land isn’t just there, it’s there, and it’s attractive to live in. That helps keep family formation robust, that helps people marry and have kids when they’re still in their 20s.
The old model that we think of the United States as having dissolved back in the 60s, in the 70s and in, say, Europe much before that, still holds here no matter where you go in New Zealand, there’s lots of families with young children, and yet 80,000 young people still left. Last year. So whenever you have a period of economic distress, people will go to places that allow them to deal with that economic distress.
New Zealand’s primary problem is that it’s small and so any of the trends that are hitting in the wider world when they do hit New Zealand, there’s not a lot of else in the system to absorb the disruption. And so people flow, Australia, because they’ve got a a deal called the Common economic policy, something like that.
Yep. I think that’s right. Anyway. And then, of course, they’re still part of the Commonwealth so they can get into Britain. And everybody, who is white is generally allowed into the United States for limited periods of time. Looking forward, you know, what we’re do to looking forward from a different viewpoint.
Okay. We’re going to finish this video from, Queen Charlotte Sound. So 80,000 Kiwis last year relocated to other countries, which is a record. And that sort of population movement in the face of economic dislocation is about what you would expect. People go to where they think their prospects will be better. Now, I may be very bullish on New Zealand long term, but it’s a small economy.
So if there is a disruption in the global system, in tourism, agriculture, they’re dependent on the global system. People will look elsewhere, at least temporarily. But we need to think about this on a much larger scale, because New Zealand country with 5 million people is, if anything, the canary in the coal mine of the disruption to come.
At the end of the day, I think the Kiwis will be fine. More than enough food for themselves, no security issues to speak of. And, because they’re so far from the East Asian landmass, they can access energy either from the Persian Gulf or from Southeast Asia, or from North America or from South America. So, you know, the lights aren’t going to go out here no matter really what happens.
Other countries are not nearly so lucky. The demographic situation in places like Germany and China is just atrocious. We’re talking about national oblivion here with, their economies ceasing to function in the way we define the term, within a decade, probably with the worst of it in China happening within five years. Germany might have a little bit more time, but only a little.
And that’s before you consider globalization. Germany and China are both export driven systems, and as the world ages, its ability to buy stuff is going to shrink. And that’s before you consider politics or trade disruptions due to changes in trade policy. So you’re going to have a lot of Chinese, a lot of Germans, a lot of people from other countries looking for greener pastures, in many cases literally.
And the people who have degrees that are useful in an industrializing environment, and, are mobile are the ones that are likely be able to take the most advantage of, especially if they’re under 50. Because just because the Germans are dying out doesn’t mean that there are no Germans under 50. And the German educational system still cranks out top talent.
It’s just that there’s not going to be much opportunity for them at home. And if you look back through history, there’s nothing about this that is unexpected. The Germans throughout history have had booms and busts triggered by changes in the geopolitical environment, the one that is most relevant to this conversation, the one that is most relevant to the United States, is what happened in the 1840s with the German civil wars at the onset of the industrial period.
There you had, over a million Germans leave Germany for American shores, increasing the country’s population, our country’s population by 7 or 8% in less than a decade, from just that one influx. And in doing so, we developed these two little things that today we call Illinois and Texas. So bringing in millions of people who know how things work and how to build things, can drastically change a culture and economy in a short period of time.
Now, the United States today has 330 million people. The sort of influx it would be necessary to jar the system. It would be pretty big. But there is going to be a very, very large supply of Germans, of Italians, of Koreans and Chinese, and the rest, to take if you can take advantage of that, you solve many of the Americans problems in terms of workforce, industry and demographics and a fairly short period of time and if we don’t, we have to figure out how to do everything without the skill sets, and that’s going to make everything more expensive.
So watch the Kiwis. In many ways, they are leading the way into something that might work in the future, and the problems that they have identified are ones that are going to be much bigger elsewhere.
And in a world of globalization and the population, the Kiwis are the ones to watch.
