New Zealand: Economic and Political Overview
Thanks to exemplary pandemic management, New Zealand rebounded quicker than many other advanced economies. This resilience bolstered economic activity, complemented by robust investment and consumption, facilitated by generous fiscal and monetary support. However, after considerable policy tightening, the economy decelerated in 2023 (+0.6%) and struggled in 2024, facing tight financial conditions. While inflation successfully returned to target and the current account deficit narrowed, real GDP is estimated to have contracted by 0.5% year-on-year, largely due to a significant decline in investment. Growth is expected to rebound to 1.4% year-on-year in 2025, accelerating further to 2.7% in 2026. The normalization of monetary policy is likely to support consumption and investment, with net exports also contributing to aggregate demand. Over the medium term, economic growth will be driven by migration, while productivity growth is forecast to remain modest unless significant structural reforms are implemented (IMF).
In the year ended June 2024, the general government net operating deficit narrowed to NZD 3.1 billion, compared to NZD 6.7 billion in the previous year. Total operating income rose by 9.7%, driven by higher tax revenue, while operating expenditure increased by 7.0%, following a 3.4% rise in 2023. The growth in expenditure was largely due to higher social benefits (up NZD 4.3 billion), employee expenses (up NZD 3.5 billion), interest expenses (up NZD 1.7 billion), and depreciation (up NZD 1.2 billion). The New Zealand government has forecast a budget deficit of NZD 17.31 billion (USD 10.02 billion) for the fiscal year ending June 30, 2025. It now no longer expects the government’s books to show a surplus during the five-year fiscal period ending June 2029. Government data shows that net core Crown debt reached NZD 175.5 billion (42.5% of GDP) as of 30 June 2024, marking an increase of approximately NZD 20 billion from the previous year. Despite high debt service costs and a slowing economy, non-performing loans have risen modestly compared to past recessions. Banks are well-capitalized with adequate buffers. Credit growth remains weak due to low demand. Housing sales are slowly increasing, with prices stabilizing 25% above pre-pandemic levels, while affordability improves as nominal incomes rise. Weaker global prices and tight monetary policy brought inflation to target after 13 consecutive quarters (2.2% as of December 2024), prompting the Reserve Bank of New Zealand (RBNZ) to reduce the Official Cash Rate (OCR) by 175 basis points to 3,7% over four cuts since August 2024. High-frequency data indicates a nascent economic recovery, with improved business and consumer confidence in Q4 of 2024.
Labour market conditions remain tight, characterized by record-high labour force participation and negligible slack, evidenced by historically low levels of unemployment and underemployment rates. This scenario has led to upward pressure on wages, especially within the services and construction sectors. While the recent surge in migration has alleviated some labour market strain, expectations for wage growth, particularly in the short term, remain elevated. Unemployment was estimated at 5.1% in 2024, from 3.7% one year earlier. It is forecast to remain stable this year and decrease to around 4.5% in 2026 (IMF). Some key social issues faced by the New Zealand government include dealing with an ageing population and increasing health care costs, boosting employment and household incomes, and increasing housing affordability.
| Main Indicators | 2023 (E) | 2024 (E) | 2025 (E) | 2026 (E) | 2027 (E) |
| GDP (billions USD) | 248.69 | 252.24 | 262.92 | 274.33 | 285.72 |
| GDP (Constant Prices, Annual % Change) | 0.6 | 0.0 | 1.9 | 2.4 | 2.4 |
| GDP per Capita (USD) | 47,423 | 47,072 | 48,234 | 49,472 | 50,652 |
| General Government Balance (in % of GDP) | -4.7 | -4.3 | -3.6 | -2.4 | -1.4 |
| General Government Gross Debt (in % of GDP) | 45.8 | 47.2 | 48.6 | 49.3 | 49.2 |
| Inflation Rate (%) | 5.7 | 2.7 | 2.2 | 2.1 | 2.0 |
| Unemployment Rate (% of the Labour Force) | 3.7 | 5.1 | 5.1 | 4.5 | 4.4 |
| Current Account (billions USD) | -17.17 | -15.84 | -13.05 | -12.41 | -11.83 |
| Current Account (in % of GDP) | -6.9 | -6.3 | -5.0 | -4.5 | -4.1 |
Source: IMF – World Economic Outlook Database, October 2021
New Zealand's economy is based on agriculture and services such as tourism, retail, and wholesale trade. Agriculture represents 5.8% of GDP and 5.6% of the total workforce (World Bank, latest data available). with pastoral farming and horticulture being the most important categories. Main agricultural products include dairy (the country is the 7th largest milk producer in the world in 2024), 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. During the first half of 2024, provisional figures indicated stability in New Zealand’s beef cattle population, which remained unchanged at 3.7 million compared to the previous year. In contrast, the number of sheep saw a decline, falling by 3% to 23.6 million. Meanwhile, the dairy cattle population experienced a modest increase of 1%, reaching 5.9 million (data Stats NZ). Figures from the Ministry for Primary Industries show that dairy export revenue is expected to rise 10% to NZD 25.5 billion by 30 June 2025, recovering from a decline in 2023/24. Horticulture exports, led by a record kiwifruit crop and higher gold kiwifruit production, are set to grow 12% to NZD 8.0 billion. Seafood exports are forecast to increase by 3% to NZD 2.2 billion, driven by strong demand, tight supply, and rebounding aquaculture.
Industry represents 19% of the GDP and 20.5% of the workforce (World Bank). Main industries include log and wood articles, food processing, manufacturing, mining, transportation equipment, construction, aluminium production, and paper products. The manufacturing sector as a whole is estimated to account for 9% of GDP. Statistics New Zealand's latest manufacturing sector survey reports a 2.3% growth in industry output for the 2023-2024 financial year, marking a gradual recovery after previous contractions. Total sector revenue reached NZD 55.3 billion, with productivity rising 1.8% year-on-year.
The services sector accounts for 67.1% of GDP and employs 73.9% of the active population (World Bank). 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. According to the latest figures from the National Statistics Institute, for the year ended March 2024 (in nominal terms), total tourism expenditure rose 14.6% to NZD 44.4 billion, an increase of NZD 5.6 billion from 2023. International tourism expenditure surged 59.9% to NZD 16.9 billion, nearing pre-pandemic levels (NZD 17.2 billion in 2019). As per the banking sector, by 2024, there were 27 registered banks functioning in the country, as per the Reserve Bank of New Zealand. In the same year, banks had USD 63.34 billion in total equity invested in New Zealand and spent USD 7.46 billion on operations. They paid USD 2.81 billion in tax and employed over 29,000 people. The five major banks paid USD 3.69 billion in wages to over 26,000 employees nationwide (data KPMG).
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
| Employment By Sector (in % of Total Employment) | 5.6 | 20.5 | 73.9 |
| Value Added (in % of GDP) | 5.8 | 19.0 | 67.1 |
| Value Added (Annual % Change) | 3.5 | -2.6 | 4.0 |
Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.
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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.}}
Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation
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.
Source: The Economist Intelligence Unit - Business Environment Rankings 2021-2025
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