New Zealand

New Zealand recorded 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, which consisted of stringent rules that contained the pandemic, the economy experienced a comparatively moderate Covid-19 slump in 2020, with GDP contracting by -1.1%. The country experienced a strong recovery in 2021 (+6% growth), but a central bank tightening cycle from end-2021 onwards undermined consumption and investment growth which, combined with a deteriorating global trade environment and rising energy prices, resulted in a slowdown of economic growth to +2.3% in 2022. New Zealand even experienced a technical recession in Q4 2022-Q1 2023 and another one is likely to be recorded for Q3-Q4 2023. For the full year 2023, growth is expected to come in below +1.5%, jeopardized by persistent high inflation, weak consumption and investment and floods. However, in 2024-2025, we expect annual average growth to be lifted to the range of +1.5% to +2%, thanks to the economic reopening of China, New Zealand’s main trading partner, the gradual recoveries of other export markets (supported by free-trade agreements), increased investments in infrastructure and a consumption rebound.

The Reserve Bank of New Zealand tightened its monetary policy from October 2021 on, trying to tackle rising inflation prompted by disturbances in supply chains and furthered by the global hike in energy prices in 2022. Consumer price inflation increased to an average of 7.2% in 2022 and remained elevated through 2023 (likely averaging in the 5.5-6% range over the year). Notably, food prices are set to remain elevated for some time after the damages to agriculture caused by natural events, though goods prices should decline due to a moderation of oil prices and lower domestic demand. Overall, inflation is forecast to decelerate gradually and to fall below 3% only in the course of 2024. Hence the policy interest rate, which was hiked from 0.25% in August 2021 to 5.50% in May 2023, should stay at this level, with little chances of a loosening before mid-2024.

New Zealand has a very favorable business climate, sharing first place in our business environment rating. The Heritage Foundation’s Index of Economic Freedom survey 2023 ranks the country fifth in the world for doing business and third in the Asia-Pacific region. New Zealand scores especially high with regards to property rights, judicial effectiveness, government integrity, trade freedom and financial freedom. But there is still moderate room for improvement regarding the tax burden, labor freedom and investment freedom. The World Bank Institute’s annual Worldwide Governance Indicators surveys indicate very high levels of regulatory quality (rank 6 worldwide), the rule of law (rank 5) and control of corruption (rank 3). Meanwhile, our proprietary Environmental Sustainability Index puts New Zealand at rank 22 out of 210 countries, reflecting very good resistances to climate change and water stress, fairly good proficiency in energy use compared to GDP, renewable electricity output and CO2 emissions compared to GDP. Only the recycling rate of the country is judged poorly.

Generally speaking, New Zealand’s political environment does not present much risks, thanks to established and transparent processes and consensus-building practices across parties. The general election in October 2023 resulted in the return of the National Party, against the Labor Party (which had been in power since 2017). National does not enjoy a majority in parliament and would thus require the support of smaller parties such as ACT and NZ First. This does not imply a risk of political instability, as New Zealand is used to coalitions.