New Zealand

New Zealand displayed robust GDP growth in the 2000s and 2010s by OECD standards, with +3% and +3.2% on average, respectively. Thanks to a swift policy reaction, the economy experienced a comparatively moderate Covid-19 slump in 2020, with GDP contracting by -1.2%. Stringent rules pressured the economy but contained the pandemic, and the subsequent easing of measures supported the domestic economic recovery. The growth path could become less volatile from 2023 as the country adjusts to higher levels of Covid-19 cases.

The government announced fiscal support reaching 19.3% of GDP through FY2024-25, covering healthcare-related spending, protection for vulnerable people, wage subsidies, infrastructure investment, support for targeted sectors etc. Fiscal revenue is performing well, given the economy's quick recovery. After deteriorating to -7.1% of GDP in FY2019-20 due to the pandemic, the fiscal balance improved quickly to -1.2% of GDP in the following year. Small fiscal deficits of this scale are likely to be registered in the coming few years.

On the monetary front, after strong policy easing to cushion the impact of the Covid-19 crisis, the Reserve Bank of New Zealand (RBNZ) started a tightening cycle in October 2021. Further rate hikes are likely in 2022 and 2023. The central bank needs to tackle a situation of overheating, with a high level of inflation, record-low unemployment and soaring housing prices.

New Zealand ranked first in the 2020 World Bank Doing Business survey. It is the best country for starting a business and getting credit, second for registering property and third in protecting minority investors. The country performs comparatively less well in areas such as trading across borders, getting electricity and resolving insolvency.

Jacinda Ardern, New Zealand’s prime minister, enjoys strong popular support, thanks to her consensus-building approach and good management of the Covid-19 pandemic. Her party, the Labour Party, holds a strong position in parliament after securing an outright majority in the October 2020 election. This should allow her government to implement policies more effectively. Furthermore, cooperation with other parties could imply a higher probability of Labour remaining in power after the next general election, scheduled in 2023. Generally speaking, New Zealand’s political environment does not present much risks, thanks to established and transparent processes.