Economic Overview

Posted on Mar 23, 2015 by marc_admin

New Zealand has an open economy that works on free market principles.

Over the last 25 years our economy has gone from being one of the most regulated in the OECD to one of the least regulated.

Fertile soil and excellent growing conditions coupled with sophisticated farming methods and advanced agricultural technology provide the ideal environment for pastoral, forestry and horticulture activities. Agricultural commodities account for around half of all goods exports, and New Zealand is one of the top five dairy exporters in the world.

Complementing our highly efficient agricultural sector are sizable manufacturing and service sectors and growing high-tech capabilities.

We have a low-inflation environment, with monetary policy managed by an independent central bank, the Reserve Bank, charged with maintaining price stability.

We have a long-standing flexible exchange rate. There are no exchange controls or restrictions on bringing in or repatriating funds.

Reserve Bank of New Zealand

Resilient economy

Rating us first in their 2012 Best Countries for Business list, Forbes commented that “New Zealand’s economy is closely tied to Australia’s, and both held up better than most during the global financial crisis. The downside to this resilience in the economy is that the New Zealand dollar has appreciated”.

Forbes also noted that New Zealand stock market investors have prospered recently. The country’s benchmark stock index, the NZX 50, rose almost 25 percent in 2012 outpacing Wall Street and Australia. By June 2013 it was reporting its best year since 2004.

Pre-crisis performance

Between 2000 and 2007, the New Zealand economy expanded by an average of 3.5% each year as private consumption and residential investment grew strongly. Annual inflation averaged 2.6%, inside the Reserve Bank of New Zealand’s 1% to 3% target range, while the current account deficit averaged 5.5% of GDP.

Handling the crisis

Like most OECD countries, New Zealand’s economy experienced an economic slow-down following the global financial crisis in September 2008. As in other advanced economies, business and consumer confidence declined. Unlike most OECD countries however, after a 2% decline in 2009, the economy pulled out of recession. It achieved 1.7% growth in 2010, 2% in 2011 and 3% in 2012. That compared with 0.3% growth in the UK and negative 0.9% in the euro area; 0.4% in Japan; 1.1% in Canada; and 1.6% in the USA.

Recovery has been led by exports, with strong demand from our major trading partners Australia and China, who have been less affected by the crisis. Relatively strong Government accounts and a well-capitalised banking system have provided a stable base for the economy. These positives together with continued strong terms of trade and the boost to GDP from the rebuilding of Christchurch, have led to a solid and on-going growth.

Strongly placed

A range of measures have stabilised the situation and New Zealand now enjoys sound macroeconomic foundations.

  • We have a relatively strong fiscal position and a commitment to reduce net debt to 20 percent of GDP by the early 2020s
  • Legislative requirements are in place to maintain public debt at prudent levels
  • The Kiwi dollar was amongst the top 25 sovereign currencies in the world as at 31 December 2012.

The New Zealand Treasury and Reserve Bank forecast that New Zealand’s economy can expect to grow 2 to 3% per year over the four years 2012-16.

Sovereign currencies | Standard and Poors' (PDF 456KB)

Government policy

The current National Party-led government elected in November 2008 and re-elected in November 2011 (further elections will be held no later than 2014) aims to lift the long-term performance of the economy through six key policy drivers:

  • A growth-enhancing tax system
  • Better public services
  • Support for science, innovation and trade
  • Better regulation, including regulation around natural resources
  • Investment in infrastructure
  • Improved education and skills.

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