New Zealand flag New Zealand: Economic and Political Overview

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 grew 2.4% in 2019 against 3.2% in 2018, but fell to -2.1% in 2020 due to the outbreak of the COVID-19. Nevertheless, growth came back to +5.1% in 2021 and is expected to remain at 3.3% in 2022 before decreasing to 1.7% in 2023 according to the updated IMF forecasts from October 2021. 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 -5.4% of GDP in 2020 and -7.6% in 2021 and is expected to be reduced to -6.5% and then -3.3% in 2022 and 2023 respectively. Due to the pandemic, the national debt increased sharply from 43.6% of GDP in 2020 to 52% of GDP in 2021. It is projected to increase again in 2022 to 56.9% and in 2023 at 58.5%. The inflation rate remained low in 2020 at 1.7% but increased to 3% in 2021 and is expected to remain stable at 2.2 and 2% over the next two years according to the latest World Economic Outlook of the IMF (October 2021). Nevertheless, 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. As a result, private consumption grew modestly in 2021.

In 2022, the country’s most immediate challenge remains related to the economic, social and public health impacts of the COVID-19 pandemic. The unemployment rate increased from 4.2% in 2019 to 4.6% in 2020 and 4.3% in 2021 despite the negative economic impact of the COVID-19 pandemic. It is expected to reach 4.4% in 2022 and 4.7% in 2023. 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 Indicators 20202021 (e)2022 (e)2023 (e)2024 (e)
GDP (billions USD) 210.51246.97242.70253.58264.97
GDP (Constant Prices, Annual % Change) -2.15.62.31.92.0
GDP per Capita (USD) 4148474950
General Government Balance (in % of GDP) -3.5-5.0-4.8-2.2-1.4
General Government Gross Debt (in % of GDP) 43.250.856.658.657.9
Inflation Rate (%) 1.73.96.33.92.6
Unemployment Rate (% of the Labour Force) 4.63.83.43.94.1
Current Account (billions USD) -1.79-14.93-18.72-15.18-14.57
Current Account (in % of GDP) -0.8-6.0-7.7-6.0-5.5

Source: IMF – World Economic Outlook Database, October 2021

Note: (e) Estimated Data

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 7% of GDP and 6% of the total workforce in 2021 (World Bank). Main agricultural products include dairy (the country is the 9th largest milk producer in the world), 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 19% of GDP and 19% of the workforce in 2021 (World Bank, 2022). 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% of GDP and employed 75% of the population in 2021 (World Bank, 2022). 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) 5.8 19.3 74.9
Value Added (in % of GDP) 5.7 20.4 65.5
Value Added (Annual % Change) -3.2 1.2 2.0

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:

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:

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

 

Country Risk

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Latest Update: November 2022

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