The economic context of New Zealand

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

New Zealand's GDP fell to -2.1% in 2020 due to the outbreak of the COVID-19. Nevertheless, growth came back to +5.6% in 2021 before decreasing to 2.3% in 2022. It should only reach 1.9% in 2023 and 2% in 2024 according to the updated IMF forecasts from January 2023. The country relies heavily on consumption to bolster its GDP, although low interest rates, a benevolent fiscal and monetary policy, and increases in real wages due to declining unemployment also factor into its economic growth. Its proximity to Asia and Australia, and strong agricultural sectors also strengthen the economy. The country's entrepreneurial environment is one of the world’s most efficient and competitive.

According to the IMF, the government balance closed at -5% of GDP in 2021 and -4.8% in 2022 and is expected to be reduced to -2.2% and then -1.4% in 2023 and 2024 respectively. Due to the pandemic, the national debt increased sharply from 43.2% of GDP in 2020 to 50.8% of GDP in 2021 and 56.6% in 2022. It is projected to increase again in 2023 to 58.6% before reaching 57.9% in 2024. The inflation rate remained low in 2021 at 3.9% but reached 6.3% in 2022. It is expected to come down to 3.9% and 2.6% over the next two years according to the latest World Economic Outlook of the IMF (January 2023). Inflation pressures have intensified over the past year as the pandemic has disrupted both demand and supply, and reached a 30-year high in February 2022 (New Zealand Treasury, 2022). Economic challenges include dependence on foreign investment, high household and corporate debt, reliance on Chinese demand, insufficient skilled workers, low R&D, and shortage of housing. The economy is also vulnerable to international commodity prices, particularly dairy and meat. Strong public funds have been allocated to reconstruction of roads, railways, and the KiwiBuild Programme. Furthermore, Government has restricted access to low-skill workers and student visas to ease housing demand, which triggered fears of worker shortage and lowered population growth.

In 2023, the country’s most immediate challenge remains related to the economic, social and public health impacts of the COVID-19 pandemic as well as the recovery from severe weather events and the consequences of the war in Ukraine. The unemployment rate increased from 4.2% in 2019 to 4.6% in 2020 but came down to 3.8% in 2021 despite the negative economic impact of the COVID-19 pandemic, and 3.4% in 2022. It is expected to reach 3.9% in 2023 and 4.1% in 2024. Some key social issues faced by the New Zealander government include dealing with an ageing population and increasing health care costs, boosting employment and household incomes, reducing teen pregnancy and child poverty, and increasing housing affordability.

Main Sectors of Industry

New Zealand's economy is based on agriculture and services such as tourism, retail, and wholesale trade. The agricultural sector is the largest industry in the country, with pastoral farming and horticulture being the most important categories. Agriculture represented 5.7% of GDP and 6% of the total workforce in 2022 (World Bank, 2023). Main agricultural products include dairy (the country is the 7th largest milk producer in the world in 2023), meat, wood, fruit (mainly peaches, plums, nectarines, drupe, cherries, apricots, and kiwi), vegetables, seafood, wheat, and barley. New Zealand also has a thriving wine industry and is rich in many natural resources, in particular gas, oil and coal. On average, migrants make up 15% of the agricultural workforce in New Zealand.

Industry represented 20.4% of GDP and 19% of the workforce in 2022 (World Bank, 2023). Main industries include log and wood articles, food processing, manufacturing, mining, transportation equipment, construction, aluminium production, and paper products. Prefabricated homes figure to factor strongly in New Zealand's housing and urban development programme.

The services sector represented 65.6% of GDP and employed 75% of the population in 2022 (World Bank, 2023). Main services include financial services, real estate services, and tourism - which is one of the most important sources of foreign currency. Other important sectors include retail and wholesale trade, restaurants and hotels.

 

Breakdown of Economic Activity By Sector	Agriculture	Industry	Services
Employment By Sector (in % of Total Employment)	6.1	20.0	73.9
Value Added (in % of GDP)	5.7	19.7	66.7
Value Added (Annual % Change)	-0.5	3.9	5.9

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:

83,9/100

World Rank:

2

Regional Rank:

2

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:

8.04/10

World Rank:

12/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2021-2025

 

Sources of General Economic Information

Ministries

Ministry of Economic Development
Ministry of Business, Innovation and Employment
Ministry of Foreign Affairs and Trade

Statistical Office

The New Zealand Statistics

Central Bank

Reserve Bank of New Zealand

Stock Exchange

New Zealand Stock Exchange

Economic Portals

Statisphere