It’s often called the world’s favourite country. With its snow-capped mountains, fabulous wines and friendly locals, New Zealand regularly tops international polls of must-visit destinations1.
The love affair goes beyond its natural assets. NZ Prime Minister Jacinda Ardern – the surprise winner of a tight 2017 election – has won hearts around the globe for her inclusive style and compassionate leadership in the wake of 2019’s Christchurch mosque attacks that killed 51.
But with an economic slowdown in recent years that has proved longer and deeper than expected, questions are being raised about New Zealand’s outlook.
And with an election called for September 2020, global attention is turning once again to New Zealand.
In this special report, we look at the economic outlook for NZ in this an important year for the land of the long white cloud.
NZ enjoyed a remarkable recovery in the ten years after the global financial crisis. But the recovery topped out in 2016 and the economy has been slowing as capacity constraints emerge, costs rise, and population growth slows.
The slowdown became more apparent in 2019 as annual NZ economic growth hit a low of around 2 per cent2. That pace would be welcome in many western economies, but not in an economy which only three years earlier was growing at a 4.5 per cent clip3. The slowdown, which was worse than many had expected, reflected the sluggish global economy and the confidence sapping US-China trade war.
Looking ahead to 2020, modestly higher growth is likely, underpinned by easier monetary policy, fiscal expansion, an improving global economy and a recovery in business confidence.
But it’s not clear how long the recovery will last.
“We don’t see a massive nor prolonged bounce in growth,” says Bevan Graham, AMP Capital’s NZ managing director and chief economist. “Capacity constraints will continue to persist, capping any significant resurgence in growth.”
AMP Capital is forecasting 2.4 per cent growth this calendar year and 2.3 per cent in 20214.
The key factor affecting the NZ outlook is the global economy. As a small, open economy with a population of just 4.9 million, NZ is highly dependent on global conditions and its capital markets rely on funding from international markets.
As the global economic outlook weakened over 2019, central banks around the world responded by easing policy. The question for us now is whether enough has been done, and how confident we can be of sustainably achieving our dual policy mandate for inflation and employment."
- Christian Hawkesby, Reserve Bank of New Zealand
NZ’s central bank, the Reserve Bank of New Zealand, estimates a 1 percentage point decrease in growth among its trading partners typically translates to a 0.6 percentage point decrease in New Zealand’s growth5. And that change flows through quickly to people’s everyday lives.
The economy’s exports are traditionally driven by the primary sector, led by milk, meat and forest products, and have benefited in recent years from higher prices driven by pork supply problems in Asia and dry summers globally driving up dairy prices.