Why is New Zealand Economy so Strong?
The New Zealand economy has experienced strong growth over the past decade, and is currently ranked as one of the strongest developed economies in the world. The country is known for its diverse and modern economy, with strong exporting industries, and a well-educated and highly educated workforce. Meanwhile, its low climate risk, top-notch public governance, and efficient tax system make it the go-to destination for international investors.
According to the Organisation for Economic Co-operation and Development (OECD), New Zealand’s current GDP is roughly US$178.5 billion, with a GDP per capita of US$46,000, one of the highest in the world. The country also has a rapidly growing population, with a total population of 4.8 million in 2020.
The foundation of New Zealand’s strong economy is its diverse range of industries, including agriculture, forestry, fisheries, manufacturing, and services. Agriculture is one of the largest sectors in the economy, making up around 90% of exports by value. The dairy industry is the country’s largest export sector, contributing around 35% of all exports, and there is significant growth in the forestry sector, which is projected to become the second largest export sector in the country.
In addition, New Zealand is well-positioned in terms of its geographical location. It is located close to major international markets such as China, Japan, and Australia. This allows the country to benefit from free trade agreements with these major trading partners and to capitalize on access to regional markets.
The New Zealand government has also been proactive in promoting economic growth through fiscal and monetary policies. In the past, the government has taken steps to reduce taxes, increase public investments, and improve the business environment. These measures have been successful in stimulating the economy and have benefitted businesses and consumers alike.
The country’s taxation system has also been a major factor in driving economic growth. New Zealand’s tax rate for individuals is relatively low when compared to other countries – with the top marginal tax rate of 33% being only slightly higher than the OECD average. Moreover, the country ranks among the best in terms of its corporate taxation system, with the top rate being 28%.
Finally, New Zealand has an enviable social safety net, with robust welfare and pension systems. This provides citizens with the security of knowing that they can rely on the government to provide them with a stable and secure living standard in times of need.
Macroeconomic Policies
The macroeconomic policies of the New Zealand government have been largely successful in fostering economic growth and reducing unemployment. The government has implemented a series of fiscal and monetary policies, such as reducing taxes, increasing public investments, and improving the business environment. This has led to increased job creation, improved wages, and economic growth.
In addition, the government has reduced the regulatory burden on businesses by cutting red tape and a simplification of the tax system. This has allowed businesses to be more competitive and productive, and to take advantage of hyper-local opportunities.
Furthermore, the government has implemented various initiatives to boost employment and entrepreneurship. These include the provision of financial assistance to small businesses, and the introduction of the KiwiSaver programme. This initiative allows individuals to save for their retirement and to get tax relief on their savings.
Finally, the government has been proactive in encouraging innovation through research and development. This has led to new business models and processes, as well as advanced technologies.
Employment Growth
New Zealand’s strong economic position has allowed the country to experience robust job growth over the past decade. The unemployment rate in New Zealand is currently 4.9%, significantly lower than the OECD average of 6%. In addition, the country has experienced record job growth in recent years, with the economy creating over 400,000 jobs since 2009.
The primary drivers of this job growth have been the high levels of business confidence, coupled with the strong fiscal and monetary policies of the government. The government has also implemented various initiatives to promote job creation, such as the “Kiwibuild” programme and the “Business Growth Agenda”. These initiatives have been successful in creating more jobs in the country.
Moreover, the country’s skilled and educated workforce has been a major factor in driving job growth. The country has one of the highest enrollments rates in higher education, with more than 70% of New Zealanders having a tertiary education. This has allowed businesses to tap into the wealth of knowledge and expertise available in the country.
Economic Risks
Despite the strong economic position of New Zealand, there are a few potential risks to its continued growth. The country’s economy is heavily influenced by the economic fortunes of its largest trading partners, in particular, the United States and Australia. Should these economies experience difficulties, the impacts could be felt in New Zealand.
In addition, changes to global economic conditions could have an impact on New Zealand’s economy. For example, the country’s strong and relatively open economy is highly dependent on international trade and capital flows. A sudden drop in global demand for New Zealand’s exports could have a significant impact on its economic growth.
Finally, New Zealand is susceptible to natural disasters such as earthquakes and floods. These disasters can have a severe impact on the country’s economy, in particular, its primary industries.
Financial Stability
While there are some potential risks to New Zealand’s economy, it has also proven to be resilient. The financial sector is well regulated and highly liquid, with capital ratios that are amongst the highest in the OECD. In addition, the banking sector is one of the most robust and resilient in the world, with a strong track record in terms of financial stability.
The New Zealand financial sector is well managed, with a resilient banking system and a prudent monetary policy. The Reserve Bank of New Zealand has implemented a range of measures to foster financial stability, such as increasing its lending rate and implementing a capital buffer requirement. These measures have served to make the banking sector less vulnerable to financial shocks.
Furthermore, the New Zealand Superannuation Fund has proved to be a successful retirement savings scheme. The fund is well diversified and has generated strong returns for its members. This has been a key element in helping to maintain a stable financial system in the country.
Finally, the country has a well-developed domestic capital market, with strong capital inflows and domestic savings that are among the highest in the OECD. This has enabled the country to finance its economic activities and invest in new industries.
Business Environment
The business environment in New Zealand is highly attractive, due to its strong macroeconomic fundamentals, competitive tax system, and efficient and transparent government. Foreign investors are attracted to the country by its low business costs, market access, world-class governance, and efficient regulatory and legal frameworks. The country is also well-positioned in terms of its geographical location, allowing businesses to benefit from preferential access to global markets.
The country ranks highly in terms of ease of doing business and investor protections. According to the World Bank’s 2020 Ease of Doing Business report, New Zealand is ranked third, with a score of 84.4 out of 100. This is an impressive achievement, given the country’s size and relative remoteness in the global economy.
Finally, the country has a strong technology ecosystem. This is supported by government initiatives such as LaunchpadNZ, which provides funding for innovative startups, and the New Zealand Entrepreneur Visa, which fosters foreign investment in innovative businesses. This has helped to create a vibrant and competitive business environment in the country.
Conclusion
New Zealand is an attractive destination for businesses and investors. The country has a strong and diverse economy, with robust macroeconomic policies, a favourable business environment, and an enviable social safety net. This has allowed the country to experience strong economic growth, low unemployment, and an attractive financial system.
