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Economy of New Zealand

From Academic Kids

Overview

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 industrialized, free market economy that can compete globally. This dynamic 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. The country has substantial hydroelectric power and sizable reserves of natural gas. Leading manufacturing sectors are food processing, metal fabrication, and wood and paper products. Some manufacturing industries, essentially forms of import substitution, such as car assembly, have completely disappeared.

Since 1984, government subsidies including 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 1990s reduced government's role in the economy and permitted the retirement of some public debt.

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 have 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 3.8% in late 2004, the lowest rate in 18 years.

The large current account deficit, which stood at more than 8% of GDP in 2000, has been a constant source of concern for New Zealand policymakers. The rebound in the export sector is expected to help narrow the deficit to lower levels.

New Zealand's economy has been helped by strong economic relations with Australia. Australia and New Zealand are partners in "Closer Economic Relations" (CER), 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 and 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 has 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 general consumer goods. On the agricultural side, the best prospects are for fresh fruit, snack foods, specialized grocery items such as organic foods, and soybean meal.

New Zealand welcomes and encourages foreign investment without discrimination. The Overseas Investment Commission (OIC) must give consent to foreign investments that would control 25% of 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 been an obstacle for U.S. investors. 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.

A number of U.S. companies have subsidiary branches in New Zealand. Many operate through local agents, and some are in association in joint ventures. The American Chamber of Commerce is active in New Zealand, with its main office in Auckland and a branch committee in Wellington.

GDP: purchasing power parity - $78.8 billion (78.8 G$) (2002 est.)

GDP - real growth rate: 4.4% (2002 est.)

GDP - per capita: purchasing power parity - $20,200 (2002 est.)

GDP - composition by sector:
agriculture: 8%
industry: 23%
services: 69% (2001)

Population below poverty line: NA%

Household income or consumption by percentage share:
lowest 10%: 0.3%
highest 10%: 29.8% (1991 est.)

Inflation rate (consumer prices): 2.7% (2002 est.)

Labour force: 1.92 million (2001 est.)

Labour force - by occupation: services 65%, industry 25%, agriculture 10% (1995)

Unemployment rate: 5.3% (2002 est.)

Budget:
revenues: $29.2 billion
expenditures: $31.2 billion, including capital expenditures of $NA (2002)

Industries: food processing, wood and paper products, textiles, machinery, transportation equipment, banking and insurance, tourism, mining

Industrial production growth rate: 3% (2001 est.)

Electricity - production: 37.51 TWh (2001)

Electricity - production by source:
fossil fuel: 31.6%
hydro: 57.8%
other: 10.7% (2001)
nuclear: 0%

Electricity - consumption: 34.88 TWh (2001)

Electricity - exports: 0 kWh (2001)

Electricity - imports: 0 kWh (2001)

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

Natural gas - proved reserves: 58.94 km³ (January 2002 est.)

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

Exports: $15 billion (2002 est.)

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

Exports - partners: Australia 18.8%, US 14.4%, Japan 12.2%, UK 4.8%, South Korea, China (2001)

Imports: $12.5 billion (2001 est.)

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

Imports - partners: Australia 21.9%, US 15.9%, Japan 11.0%, UK 3.8% (2001)

Debt - external: $33 billion (2002 est.)

Economic aid - donor: ODA, $99.7 million

Currency: 1 New Zealand dollar (NZ$) = 100 cents

Currency code: NZD

Exchange rates: New Zealand dollars (NZ$) per US$1 - 2.1622 (2002), 2.3788 (2001), 2.2012 (2000), 1.8886 (1999), 1.8632 (1998), 1.5083 (1997), 1.4543 (1996), 1.5235 (1995)

Fiscal year: 1 July - 30 June

See also



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