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New Zealand

Slow and modest recovery

AA1

LOW RISK for enterprise

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

Last updated in January 2025.

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Form of state Parliamentary Democracy (Commonwealth)
Head of government Chistopher Luxon (Prime Minister)
Next elections 2026, legislative

Strengths & Weaknesses

Strenghts
  • Solid public finances
  • Proximity to Asian markets
  • Favorable demographics
  • The tourism industry
Weaknesses
  • Shortage of skilled workers
  • Dependence on agricultural exports
  • High level of household debt
  • Vulnerability to natural disasters

Economic Overview

Modest recovery and gradual retreat of inflation

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, the economy experienced a comparatively moderate Covid-19 slump in 2020 (GDP contracting by -1.1%), followed by a strong recovery in 2021 (around +6% growth). The central bank tightening cycle from end-2021 to 2023 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 +2.2% in 2022 and +0.9% in 2023. Another year of low growth was likely recorded in 2024 (around +0.5%) as the economy continued to deal with elevated borrowing costs. In 2025-2026, we expect annual average growth to recover to +1.7% and +2.3%, respectively, as monetary easing supports investment. A return to pre-crises levels of growth seems difficult in the coming years, in part on the back of exports being pressured by sluggish demand from New Zealand’s trade partners.

The Reserve Bank of New Zealand (RBNZ) tightened its monetary policy from October 2021 until mid-2023 (+525bps in its policy rates), trying to tackle elevated 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 5.7% in 2023, before moderating to around 3% in 2024 and likely around 2% in 2025-2026 – well within the RBNZ’s target range of 1-3%. As a result, the RBNZ started to ease its policy stance in mid-2024 (-125bps in its policy rate in the second half of 2024) and is likely to deliver a further -125bps worth of cuts by the end of 2026.

Solid public finances but household debt and external finances worth monitoring

New Zealand’s financing risk is deemed low, even though its public finances have somewhat suffered in the past years. Fiscal support measures in response to the Covid-19 pandemic and then to rising global energy and food prices drove up the annual fiscal deficit to an average of nearly -4% of GDP between 2020-2024, compared with around -1% on average in the 2010s. However, the fiscal deficit is forecast to narrow in the coming years, falling to less than -2% of GDP by 2026. New Zealand’s public debt rose in recent years, but at less than 50% of GDP remains well below the average for the OECD (around 80% of GDP) or the Asia-Pacific region (around 60%). The main financial concern of the country is the level of household debt, largely composed of mortgages, which stands at around 170% of disposable income, and is affected by still relatively elevated interest rates. Household debt servicing stood at around 11% of disposable income at the end of 2024, the highest since mid-2011.

New Zealand’s external finances have suffered due to subsequent crises in recent years. The current account deficit widened from -1% of GDP in 2020 to nearly -9% in 2022 and remained at around -6% in 2024. It is likely to narrow somewhat in the coming few years, albeit gradually, in the context of still soft demand from China, somewhat declining energy import prices, a rebound in tourism and a trade agreement with the EU that came into effect in 2024. Yet, the annual current account deficit is forecast to remain at -5% in 2025 and -4.5% in 2026. More generally, New Zealand’s trade structure leaves it vulnerable to external shocks: (i) China is New Zealand’s main trade partner, accounting for more than 25% of its exports and more than 20% of its imports in 2023; (ii) Australia and the US are the second and third largest trade partners, with significant shares, making New Zealand dependent on the business cycles of these economies and (iii) New Zealand’s exports also rely very heavily on food and agricultural products and are therefore exposed to weather hazards.

Strong business environment and stable political framework

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 government integrity, judicial effectiveness, trade freedom, business freedom and property rights. There is still moderate room for improvement regarding the government spending and tax burden. The World Bank Institute’s annual Worldwide Governance Indicators surveys indicate very high levels of regulatory quality and control of corruption (rank 3 worldwide), and a very high level of rule of law albeit slightly lower than the previous year, ranking 5th worldwide down from the 3rd rank based on the 2022 survey. Meanwhile, our proprietary Environmental Sustainability Index puts New Zealand at rank 15 out of 210 countries, reflecting very good resistances to water stress and climate change, fairly good proficiency in renewable electricity output, CO2 emissions compared to GDP and energy use compared to GDP. Only the recycling rate of the country is judged poorly.

New Zealand’s political environment does not present many risks, thanks to established and transparent processes and consensus-building practices across parties. Since 2023, the government has been led by the National Party, under Christopher Luxon. Despite their short time in office, the government has received historically low approval ratings. At the same time the party has struggled with implementing some of their reforms due to conflict with their coalition partners, such as NZ First’s resistance to allowing foreigners to buy property in the country as part of the Golden Visa reforms. For these reasons, we expect that Labour under Chris Hipkins will likely return to power next year in the 2026 election as he currently holds the highest approval of any political party leader.

Trade Structure by destination/origin 

(% of total, 2023)

Trade Structure by product  

(% of total, annual 2023)

Collection Complexity

The Allianz Trade Collection Complexity Score provides a simple assessment of how easy it is to collect debt around the world. The 2022 edition covers 49 countries that represent nearly 90% of global GDP and 85% of global trade.
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Contacts

Françoise Huang
Senior Economist for Asia Pacific
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