Over the last 30 years, New Zealand’s economy has transformed to one of the most free-market based economies, with exports accounting for about 30% of the country’s GDP.
The fertility of the country’s grounds, sophisticated farming methods and high-tech technology, have all contributed to the evolvement of the agricultural and related sectors and the introduction of new activities within them. Half of all goods exports are attributed to primary commodities, while New Zealand is considered one of the top five dairy exporters worldwide. In complement, the manufacturing sector is sizeable, while significant progress has been achieved in the services and high-tech directions. Tourism, winery and film making activities, also contribute to the economy of the country.
Recessions at the early 1990s, the Asian financial crisis and the recent (2008) global economic crisis have all affected the New Zealand’s GDP growth.
More specifically, in the period (2000-2007), before the latest crisis, New Zealand’s economy was expanding by an annual average of 3.5%, as a result of strong growth of private consumption and residential investment. Annual inflation averaged at about 2.6% and account deficit was 5.5% of GDP.
As soon as the global financial crisis started (2008), the high fuel and food prices resulted in reduced private consumption, slowing sharply the domestic economic activity. Moreover, the high interest rates and falling house prices, led to a rapid decline in residential investment. Reduced manufacturing activity, construction, wholesale and retail trade, escalated the aforementioned negative economic developments, contracting the local economy by 0.9% in the last quarter of 2008 and 0.8% in the first quarter of 2009.
However, New Zealand reacted relatively well under the financial pressure, when compared with the rest of the OECD countries. In 2010, the renewed optimism drove consumer and business confidence higher –increasing private production and consumption-, which altered the socioeconomic environment and led to positive economic developments – recording a 1.7% growth in 2010, 2% in 2011 and 2.9% in 2012. After a decline in 2013, GDP increased by 3.4% and reached some NZ $241.2 Billion, in 2015.
More specifically, in 2015, three regions, i.e. Auckland, Canterbury and Wellington, contributed the highest amounts to the country’s GDP, as traditionally tended to happen (see chart below). According to New Zealand’s statistics authority, Auckland (36.6%) was by far the main contributor to the national GDP, followed by Canterbury (13.6%) and Wellington (13.5%). The South Island, including the regions of Southland, West Coast, Tasman/Nelson, Marlborough, Otago and Canterbury, contributed in total a mere 23.4% of the GDP.
The economic growth of the country has been of an average 3% for the last three years (2013-2015), driven by the increased trade activity, the reconstruction works in the Canterbury region (after the 2011 earthquake) and the growing construction market, particularly of Auckland. However, the reduced oil prices (up to mid-2016), will not be able to further offset deteriorated trade activity, affected by the decreased prices (fallen in the second quarter of 2014) of the nation’s largest exporting commodity, namely that of dairy products. Despite the rapidly increasing population that will boost the construction activity in Auckland for the next few years, growth is expected to pick up again in 2018.
New Zealand’s economy, depends heavily on international trade, while the economic reforms that took place in the country during the 1980s, reinforced the market and increased foreign investments in the country.
Having recovered from the recent economic crisis (2008), New Zealand recorded continuous surpluses in trade of goods, from 2010 to 2014. According to New Zealand’s statistics authority, the county’s goods trade balance in 2014, exhibited a surplus of NZ $2.7 billion (approximately US $1.9 billion), as total exports of goods were NZ $50.4 billion (approximately US $35.6 billion), while imports were NZ $47.7 billion (approximately US $33.7 billion).
However, since 2015, due to the increased imports versus exports, the country has been registering negative trade balances, as far as the trade of goods. Specifically, in 2016, the associated deficit hit its highest value in the last eight years, reaching NZ $ 2.5 billion. This deficit is expected to further widen, mostly as a result of low dairy product prices and continuous household demand for imported commodities.
Today, New Zealand is the top exporter of sheep meet and dairy products and the 2nd largest wool exporter globally, while is ranked as the world’s 12th largest agricultural exporter by value. The non-agricultural exported products, consist of forestry products, crude and refined petroleum, as well as fish products, while the clothing and electronics exports are recording significant growth. The main export destinations for goods include China, Australia, the US, Japan and the UK.
In terms of services, New Zealand’s exporting activity has been boosted in recent years, as a result of increased Tourism, Transport, Travel and Business services, as well as ICT (Information Communication Technologies) and film production services. In 2016, the main associated imports included Travel, Transportation, Business, Charges for the use of IPs (Intellectual Property), and finally Insurance and pension services.
These services have been mostly directed to Australia (26%), China (17%), the US (15%), the UK (8%) and India (6%).
Realising its position on the world map as a trading nation, and understanding the critical importance of FTAs (Foreign Trade Agreements), New Zealand focuses on establishing further such, as well as ensuring that local businesses can take full advantage of the existing ones. As part of the country’s strategic growth plan, in February 2016, New Zealand (along with 11 other countries) signed the Trans-Pacific Partnership (TPP), free trade agreement. The TPP sets new standards for trade and investment in the Asia-Pacific region, through the promotion of a freest economy and regional supply chains, allowing New Zealand to diversify its trade and investment relationships, while expanding its trading activities worldwide.
Due to economic decline in 2008, unemployment rose significantly, to reach 6.1% in 2009 and peak in 2012, at 6.9%. In 2015, unemployment fell to 5.8%, however for 2016 it was predicted to rise to 6.5%, with a subsequent declining trend for the following years.
Today, New Zealand has one of the lowest unemployment rates (in the 15-64 year-olds group) -10th lowest unemployment rate among 35 countries-, when compared to other OECD countries. Labour demand is strong, especially in the construction sector, mainly due to the building activity in the Auckland and Canterbury regions (see in previous). However with rising vacancies, skills shortages have been noted in the construction sector, in management positions and in some specialised ICT and engineering disciplines.
To confront the jobs-skills mismatch and therefore increase productivity and/or related efficiencies, local authorities have initiated programs, such as the “Canterbury Skills and Employment Hub”, through which a matching of jobseekers with employers’ vacancies (for the area) takes place. In the case of absence of a skilled local candidate, a fast-track visa application process is activated for any ‘fitting’ migrant workers. Other initiatives include information provision on diverse ways of obtaining fundamental skills for employment, as well as governmental funding for positions of high demand and development of ICT graduate schools. Finally, the migration reforms that took place in the country, have contributed positively towards the integration of immigrants into the labour market.
Given that governmental reforms will take place as planned, unemployment levels are expected to follow a declining trend, from 2017 onwards (see figure and discussion above).
Foreign Direct Investment (FDI) in the country, recorded its lowest level in recent years in 2009, as a consequence of the global financial crisis. Since then, FDI inflows of a total value of some NZ $47.2 billion have been invested in the country.
In 2016, the top five nations investing in New Zealand, were Australia, the US, the UK, Japan and the Netherlands. In total, for the 2015-2016 financial year (ending on the 31st of March 2016), New Zealand was the recipient of a cumulative foreign investment of NZ $386.4 billion.
In much the same period (2014-2015), the deficit increased to 3.3% of the GDP (See chart below). This was a consequence of the declining export prices and the reduced trade activity.
In 2016, the deficit is projected to increase further, reaching 6%, due to low commodity export prices and reduced exports of agricultural products.
Moreover, the low-inflation environment and the long-standing flexible exchange rate, part of the national monetary policy (managed by the New Zealand’s Reserve Bank, the independent central bank of the country), ensure the macroeconomic stability of the country and make it an attractive destination for investments.
Finally, it cannot be omitted that in the 2015 “Index of Economic Freedom” of the Heritage foundation, New Zealand was rated as the world’s third freest economy (behind Hong Kong and Singapore). More recently, according to the World Bank’s “Doing Business 2017” report, New Zealand ranked 1st for the second consecutive year, as far as the ease of doing business.