Recently made a move to beautiful New Zealand and wondering about what the economy in New Zealand is like? You might have a few important questions in mind about its economy, such as: What kind of economy is New Zealand? Does New Zealand have a good economy? What will the economy look like in 2021? And is New Zealand’s economy in trouble after the recent Covid-19 pandemic?
If you’re thinking of starting a new journey in the land of the Kiwis and want to know more about the economy there, then don’t worry! This post was written with individuals like you in mind!
Keep reading to find out everything you need to know about the economy in New Zealand and how it affects you. Let’s get started!
Economy 101: What you should know about New Zealand’s economy
What type of economic system does New Zealand have? To put it simply, the economy in New Zealand is a developed free-market economy. In terms of New Zealand’s rank in world rankings, it is the 52nd biggest national economy when ranked according to Gross Domestic Product (GDP) and the 63rd largest globally when ranked by Purchasing Power Parity (PPP).
It has a huge GDP for its small population of around 5 million, and the economy relies heavily on international trade with other countries like Australia, Canada, Europe, and the US. The country’s 1983 Closer Economic Relations accord with Australia also means that the economy is closely associated with its neighbouring island continent. Over the last three decades, the economy has evolved from being one of the most regulated economies in the OECD to one of the freest and least regulated ones.
The abundance of fertile soil and the availability of innovative agricultural tech has made NZ ideal for pastoral, horticulture, and forestry-related activities. Primary commodities make up roughly 50% of all goods exports, and the country is the biggest exporter of dairy worldwide, with exports of around 6.5 billion $USD in 2020.
The primary production sector is complemented by a substantial manufacturing sector and expanding high-tech capabilities. Tourism and winemaking also are sizable components of the island nation’s economy.
All in all, NZ is a sophisticated, internationally competitive economy, with exported goods making up around 30% of the GDP. The country’s economy also ranked a high 12th spot globally in 2021 in the Social Progress Index, which ranks countries on areas like basic human needs, standards of living, and levels of opportunity for residents.
New Zealand’s economy from past to present
What is New Zealand’s economy based on? Well, for a long time, the economy in New Zealand was highly dependent on agricultural produce such as wool, dairy, and meat. These primary products became their most valuable exports and underpinned the success of its economy from the 1850s up to the 1970s.
During the 1960s, prices for these primary products declined dramatically, and the GDP suffered as a result. On top of that, the loss of its preferential trading status (1973) with the U.K when it joined the European Economic Community (ECC) also made things worse for the economy.
Learning from their financial mistakes, the economy in New Zealand from 1984 to 1993 transformed from a closed and central economy to one of the most open ones in the OECD. This is due to effective policies introduced by successive governments, which led to a more liberalised economy.
Before New Zealand’s colonization, the region relied entirely on a subsistence economy and was not based on currency. In the 19th century, sheep farming started flourishing due to the development of transport systems and roads.
During the 1870s, Julius Vogel (8th Premier of New Zealand) made huge developments to the infrastructure and transport system of the nation by investing in roads, telegraphs, bridges, and railways. Unfortunately, progress slowed dramatically due to the crumbling of the City of Glasgow Bank, and economic activity was limited.
That is until refrigeration was discovered in 1882. This invention enabled New Zealand to start exporting meat and other non-shelf-stable products to the UK. This led to the transformation of the economy but also made New Zealand’s economy highly dependent on the UK.
During the 19th century, most economic activities were carried out mostly in the South Island of New Zealand. But due to the success of refrigeration, dairy farming started becoming preferable in regions that were less fit for sheep farming, particularly the North Island. As more dairy farms developed, the Northland started becoming more important to New Zealand’s economy.
For the most part, dairy farming was a response to strong market demands in Europe and led to the transformation of New Zealand’s countryside, production strategies, and economy. It also led to mass migrations to produce the supply of dairy.
During the late nineteenth century and the 1960s, the living standards in New Zealand were amongst the best in the world. However, the economic growth between the 1950 and the 1990s was extremely sluggish, and many European countries surpassed NZ in terms of per capita GDP. By the early 21st century, NZ’s per capita GDP was in the bottom 50% of the developed world.
2000 – 2010s
Between the years 2000 and 2007, the economy in New Zealand grew by an average of 3.5 percent each year, propelled mainly due to private consumption and the promising housing market. During these few years, inflation was also kept low at around 2.6 percent a year, which was within the Reserve Bank’s goal of around 1 to 3 percent.
The World Bank also praised New Zealand as being the most business-friendly nation worldwide in 2005! Unfortunately, things quickly changed for the worse. 2008 brought with it a recession even before the consequences of the global financial crisis hit the region later in the year.
The droughts of 2007 to 2008 also contributed to lower exports of dairy products in the first quarters of 2008. Domestic economic activity also declined sharply over the same year as increasing fuel and food prices discouraged domestic consumption.
Additionally, rising interest rates and plummeting property prices also drove a dramatic decline in residential investment. Instability was developing globally in the finance sectors. This reached a high in September of 2008 when Lehman Brothers collapsed and sent the world into a financial crisis.
Later in 2009, the economy started picking up pace. This was boosted by high demand from major trading partners such as China and Australia. In addition, record high prices for dairy and log exports also funded the economy in New Zealand.
2010s – Present (Covid-19)
The high commodity prices and good trading relations and demand from China provided a much-needed boost to the nominal GDP growth of the economy in New Zealand in 2013. As a result, the economy grew by 3.3 percent. On the flip-side, the expanding wealth gap began to become more apparent as the economy in New Zealand grew.
On the 28 February 2020, New Zealand recorded its first coronavirus case. In quick response to this pandemic, the nation closed all borders to all travelers except residents and citizens of the country on the 19th of March.
It went into complete (level 4) lockdown from 26 March to 27th April, followed by a more partial (level 3) lockdown from 28 April to 13th of May. In addition to the constant lockdowns, the closure of borders saw the accommodation, retail, and transportation sectors experiencing dramatic falls.
On the 17th of September 2020, the country officially went into recession, with the GDP falling by 12.2 percent in the June quarter.After being successful in containing the novel virus, the economy in New Zealand faced a V-shaped recovery and experienced sharp growth. New Zealand eventually ended 2020 with an overall economic growth of 0.4 percent, much better than the predicted contraction of 1.7 percent!
The economy is predicted to gradually pick up and grow throughout the second half of 2021 and is boosted by the reopening of the borders, reaching 3.5 percent in 2021 and is expected to grow by 3.8 percent in 2022.
Private consumption remains strong and is supported by new minimum wage increases and the wealth effects from increasing property prices. Housing investment is also expected to grow on the back of rising prices, high issuance of building permits, and increased public infrastructure projects.
Overall, the economic outlook for the country is positive, and it’s safe to say that the worst of the pandemic is finally behind the island nation.
Why is New Zealand’s economy ideal for someone who wants to live there?
Starting a business in New Zealand
Are you thinking of starting your own private business in New Zealand? If so, there’s some encouraging news for you!
New Zealand is one of the most promising countries in the world to conduct business. According to the World Bank, New Zealand took the number 1 spot globally in 2019 for the easiest country to conduct business in. According to transparency.org, it is also the least corrupt country in the world. You can be assured when doing business in New Zealand that you’ll be dealing with a secure economy.
New Zealand is an investor’s haven. With a promising economic landscape and a stable government, the country is ideal for foreign investors. New Zealand also boasts a transparent legal system and robust export market. This is coupled with convenient foreign exchange controls and high visa issuance rates.
The availability of natural resources and a skilled workforce is also something that highly appeals to foreign investors.
Cost of living in New Zealand
New Zealand is regularly ranked as one of the best countries to live in. Unfortunately, this natural beauty comes at a price. The average cost of living is relatively high. A family of four can expect to spend roughly $6,000 to $8,000 each month.
Wondering why is it so expensive in the first place? Well, the answer is quite simple. It is a remote island nation, and many goods need to be imported. The substantial import taxes of the country drive up prices.
Tourism also plays a part in driving the prices of goods in New Zealand. Prices increase as tourists don’t think twice about paying significant amounts of money when trying to experience New Zealand. The bigger cities such as Wellington, Christchurch, and Auckland are obviously more expensive than some rural areas. These areas have higher property, rental, food, and entertainment prices.
That’s why if you’re thinking of settling on a budget, smaller cities like Hamilton and Dunedin might be more up your alley.