Economy of New Zealand

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Template:Economy of New Zealand table The Economy of New Zealand is a market economy which is greatly dependent on international trade, mainly with Australia, the United States of America and Japan. It is strongly dependant on tourism and agricultural exports, and has only small manufacturing and high-tech components. Economic free-market reforms of the last decades have removed many barriers to foreign investment, and the World Bank has praised New Zealand as being the most business-friendly country of the world.^[1]

1 Economic profile
2 Microeconomic reform
3 Economic relations
4 Other economic indicators
5 References
6 See also
7 External links

[edit] Economic profile

This is a chart of trend of gross domestic product of New Zealand at market prices estimated by the International Monetary Fund with figures in millions of New Zealand Dollars.

Year	Gross Domestic Product	US Dollar Exchange	Inflation Index (2000=100)
1980	22,976	1.02 New Zealand Dollars	30
1985	45,003	2.00 New Zealand Dollars	53
1990	73,745	1.67 New Zealand Dollars	84
1995	91,881	1.52 New Zealand Dollars	93
2000	114,563	2.18 New Zealand Dollars	100
2005	154,108	1.41 New Zealand Dollars	113

For purchasing power parity comparisons, the US Dollar is exchanged at 1.51 New Zealand Dollars.

Traditionally, New Zealand's economy was built upon on a narrow range of primary products, such as wool, meat and dairy products. Due to the high demand for these products - such as the New Zealand wool boom of 1951 - New Zealand enjoyed high standards of living. However, commodity prices for these exports declined, and New Zealand lost its preferential trading position with the United Kingdom in 1973, due to the latter joining the European Economic Community.

Since 1984, the government of New Zealand has accomplished major economic restructuring, moving an agrarian economy dependent on concessionary British market access toward a more industrialised, free market economy that can compete globally. This growth has boosted real incomes, broadened and deepened the technological capabilities of the industrial sector, and contained inflationary pressures. Inflation remains among the lowest in the industrial world. Per capita GDP has been moving up toward the levels of the big West European economies. New Zealand's heavy dependence on trade leaves its growth prospects vulnerable to economic performance in Asia, Europe, and the United States.

New Zealand's economy has traditionally been based on a foundation of exports from its very efficient agricultural system. Leading agricultural exports include meat, dairy products, forest products, fruit and vegetables, fish, and wool. New Zealand was a direct beneficiary of many of the reforms achieved under the Uruguay Round of trade negotiations, with agriculture in general and the dairy sector in particular enjoying many new trade opportunities in the long term. The country has substantial hydroelectric power and sizable reserves of natural gas, much of which is exploited due primarily to major Keynesian import substitution-oriented industrial projects (See Think Big). Leading manufacturing sectors are food processing, metal fabrication, and wood and paper products. Some manufacturing industries, many of which had only been established in a climate of import substitution with high tariffs and subsidies, such as car assembly, have completely disappeared, and manufacturing's importance in the economy is in a general decline.

The New Zealand economy has recently been perceived as successful. However, the generally positive outlook includes some challenges. New Zealand income levels, which used to be above much of Western Europe prior to the deep crisis of the 1970s, have never recovered in relative terms. The New Zealand GDP per capita is for instance less than that of Spain and about 60 % that of the United States. Income inequality has increased greatly, implying that significant portions of the population have quite modest incomes. Further, New Zealand has a very large current account deficit of 8-9% of GDP. However, despite this, its public debt stands at only 21.2% (2006 est.) ^[2] of the total GDP, which is comparatively small compared to many developed nations. However, foreign currency earnings from agricultural exports and tourism cannot nearly cover the imports of advanced manufactured goods required to sustain the New Zealand economy.^{[citation needed]} It has also been noted that national debt (beyond just the public debt) has increased 11-fold between 1984 and 2006, now reaching NZ $182 billion, NZ $45,000 for each person.^[1]

[edit] Microeconomic reform

Since 1984, government subsidies including those for agriculture have been eliminated; import regulations have been liberalised; exchange rates have been freely floated; controls on interest rates, wages, and prices have been removed; and marginal rates of taxation reduced. Tight monetary policy and major efforts to reduce the government budget deficit brought the inflation rate down from an annual rate of more than 18% in 1987. The restructuring and sale of government-owned enterprises in the 1980s and 1990s reduced government's role in the economy and permitted the retirement of some public debt, but simultaneously massively increased the necessity for greater welfare spending and has led to considerably higher rates of unemployment than were standard in New Zealand in earlier decades. However, unemployment in New Zealand is again low, hovering around 3.5% to 4%.

Economic growth, which had slowed in 1997 and 1998 due to the negative effects of the Asian financial crisis and two successive years of drought, rebounded in 1999. A low New Zealand dollar, favourable weather, and high commodity prices boosted exports, and the economy is estimated to have grown by 2.5% in 2000. Growth resumed at a higher level from 2001 onwards due primarily to the lower value of the New Zealand dollar which made exports more competitive. The return of substantial economic growth led the unemployment rate to drop from 7.8% in 1999 to 3.4% in late 2005, the lowest rate in nearly 20 years. The large current account deficit, which stood at more than 6.5% of GDP in 2000, has been a constant source of concern for New Zealand policymakers and has now hit 9% to date as of March 2006. The rebound in the export sector is expected to help narrow the deficit to lower levels, but the budget deficit continues to increase as of 2005, especially due to increases in the value of the New Zealand dollar.

[edit] Economic relations

New Zealand's economy has been helped by strong economic relations with Australia. Australia and New Zealand are partners in "Closer Economic Relations" (CER) [1], which allows for free trade in goods and most services. Since 1990, CER has created a single market of more than 22 million people, and this has provided new opportunities for New Zealand exporters. Australia is now the destination of 19% of New Zealand's exports, compared to 14% in 1983. Both sides also have agreed to consider extending CER to product standardization and taxation policy. New Zealand initiated a free trade agreement with Singapore in September 2000 which was extended in 2005 to include Chile and Brunei and is now known as the P4 agreement. New Zealand is seeking other bilateral/regional trade agreements in the Pacific area.

U.S. goods and services have been competitive in New Zealand, though the strong U.S. dollar created challenges for U.S. exporters in 2001. The market-led economy offers many opportunities for U.S. exporters and investors. Investment opportunities exist in chemicals, food preparation, finance, tourism, and forest products, as well as in franchising. The best sales prospects are for medical equipment, information technology, and consumer goods. On the agricultural side, the best prospects are for fresh fruit, snack foods, specialised grocery items (eg. organic foods), and soybean meal. A number of U.S. companies have subsidiary branches in New Zealand. Many operate through local agents, with some joint venture associations. The American Chamber of Commerce is active in New Zealand, with its main office in Auckland and a branch committee in Wellington.

New Zealand welcomes and encourages foreign investment without discrimination. The Overseas Investment Commission (OIC) must give consent to foreign investments that would control 25% or more of businesses or property worth more than NZ$50 million. Restrictions and approval requirements also apply to certain investments in land and in the commercial fishing industry. In practice, OIC approval requirements have not hindered U.S. investment. OIC consent is based on a national interest determination, but no performance requirements are attached to foreign direct investment after consent is given. Full remittance of profits and capital is permitted through normal banking channels.

This free investment by foreign capital has also been criticised. Groups like Campaign Against Foreign Control of Aotearoa (CAFCA) consider that New Zealand's economy is substantially overseas-owned, noting that direct ownership of New Zealand companies by foreign parties increased from $9.7 billion in 1989 to $83 billion in 2007 (an over 700% increase), while 41% of the New Zealand sharemarket valuation is now overseas-owned, compared to 19% in 1989. Around 9% of all New Zealand agriculturally productive land is also foreign-owned. CAFCA considers that the effect of such takeovers has generally been negative in terms of jobs and wages.^[1]

[edit] Other economic indicators

Industrial Production Growth Rate: 5.9% (2004)

Household income or consumption by percentage share:

Lowest 10%: 0.3%
Highest 10%: 29.8% (1991)

Agriculture - Products: wheat, barley, potatoes, pulses, fruits, vegetables; wool, beef, dairy products; fish

Exports - commodities: dairy products, meat, wood and wood products, fish, machinery

Imports - commodities: machinery and equipment, vehicles and aircraft, petroleum, electronics, textiles, plastics

Electricity:

Electricity - consumption: 34.88 TWh (2001)
Electricity - production: 38.39 TWh (2004)
Electricity - exports: 0 kWh (2001)
Electricity - imports: 0 kWh (2001)

Electricity - Production by source:

Fossil Fuel: 31.6%
Hydro: 57.8%
Nuclear: 0%
Other: 10.7% (2001)

Oil:

Oil - production: 42,160 barrel/day (6,703 m³/d) 2001
Oil - consumption: 132,700 barrel/day (21,100 m³/d) 2001
Oil - exports: 30,220 barrel/day (4,800 m³/d) 2001
Oil - imports: 119,700 barrel/day (19,000 m³/d) 2001
Oil - proved reserves: 89.62 million barrel (14,250,000 m³) January 2002

Exchange rates:
New Zealand Dollars (NZ$) per US$1 - 1.3869 (2005), 1.5248 (2004), 1.9071 (2003), 2.1622 (2002), 2.3788 (2001), 2.2012 (2000), 1.8886 (1999), 1.8632 (1998), 1.5083 (1997), 1.4543 (1996), 1.5235 (1995)

[edit] References

↑ ^a ^b ^c Matt McCarten: Foreign owners muscle in as New Zealand sells off all its assets - The New Zealand Herald, Sunday 14 January 2007
^ Template:Cite news

Harcourt, T. (2005). Closer Economic Relations. Australian Trade Commission Website
This article contains material from the CIA World Factbook (2005 edition) which, as a US government publication, is in the public domain.