New Zealand’s Economy

New Zealand has a mixed economy which is mostly based on the free market principles. It is dependent on international trade with countries like Australia, USA, China, and Japan, and focused on specific sectors like tourism, agriculture, manufacturing, and financial services. Exporting goods and services takes about one third of real expenditure GDP. Some of the country’s natural energy resources include coal, natural gas and some oil reserves, geothermal fields, and climate conditions that are substantial for hydro-electric development.

In 2007, power from renewable resources such as wind and water, accounted for 60% of total electricity production, and geothermal making up the rest of percentage, which makes New Zealand eco-friendly. One of the biggest parts of the economic sectors is service industries like financial services, transportation, tourism, etc. which makes up about two thirds of the GDP. New Zealand’s economy developed throughout decades, coming from agriculture based to free market economy, and this accomplishment started after World War II.

New Zealand’s economy is growing and expanding nowadays, but it faced hard years after World War II. After the war, the country had successful years of agriculture-based economy. During 1950’s and 60’s, there was a period of full employment with GDP’s average annual rate of 4%. One of the factors that helped the economical growth at that time was the wool boom of 1951 where New Zealand exported large amounts of wool to USA , which led to high prices, thus higher standard of living. In the 70’s, the wool boom ended and access to key world markets for agriculture became very difficult.

Also, the increases in oil prices in 1973 followed with falls in prices for exports, led economy to poorly adapt to the changing world environment. After 1984, some policies and reforms took place in order to achieve low inflation and decent fiscal position. The reforms included the floating of exchange rate, ending of industry assistance, removal of price controls, privatization of state-owned assets etc. Those reforms and policies worked, and in late 80’s it showed small growth. Later the economy grew even more showing growth in average real GDP to 6.

8% in 1994. After those years, country’s economy was growing moderately and accelerated in 2004 with the increases in oil prices. During the recent decade, New Zealand experienced some stable growth which lowered the inflation and unemployment rate, but not completely. New Zealand’s economy has been relatively successful, but the positive outlook involves some challenges. After the crisis in 1970’s, the country hasn’t fully recovered. For example, the GDP per capita is much less than in Spain and about 60% of USA.

Income inequality increased, saying that a relatively big portion of people have quite good income. Also, the country have large current account deficit of about 9% of GDP, but the public debt is about 21% of GDP, which is still much smaller than some developed countries. The net foreign debt increased over the years 1984 until now, reaching NZD 182 billion. This could lead to the conclusion that the most of the foreign debt is concentrated in private sector, because income from agricultural exports and tourism doesn’t cover the imports of manufactured goods need to maintain the stable economy.

High export price growth in 2008, exchange rate depreciation, and decreasing import growth will help current account deficit to decrease over the next 5 years. Inflation in the country increased over the past 2 years to 3. 2% because of the high petrol and food prices. The inflation is expected to remain relatively high throughout 2008 and 2009, but hopefully will drop if the NZ currency will stop depreciating. The outlook of the country’s economy is closely related to the global economic outlook and stability.

If the global growth maintains a strong level, the people of New Zealand should be resilient to the changes in order to continue the developments and maintain economic stability. New Zealand economy moved from the agriculture-based to free market economy, and passed through many challenges. Even though the GDP was growing due to the reforms and some government policies like privatization of the government-owned assets and Public Finance Act of 1989, the annual average percentage change is actually decreasing, which means the GDP growth is slowing down.

Also, the country is dependent on the agriculture products and their exports, which takes large portions of money especially when the inflation is relatively high in 2008 (about 4%). The country needs to expand their manufacturing industries and increase their domestic activity in order to move further away from agricultural dependency. Overall, New Zealand economy performs successfully, especially their dealing with debts which fell from 49% in 1993 to 2. 1% in 2006 (net debt). Hopefully in the future, the country will face lower inflation and increased domestic activity.