Economy

The economy of New Zealand is based on farming, especially sheep and cattle. It is one of the world's major exporters of dairy produce and the third-largest exporter of wool.

New Zealand has a high standard of living with GDP per capita estimated at $26,464 (comparative figures are United Kingdom $37,023 and United States $42,000). The standard of living has also been measured in other forms, including being ranked 20th on the 2006 Human Development Index (UK 17th, US 8th) and 15th in The Economist's 2005 world-wide quality-of-life index (UK 29th, US 13th).

New Zealand is a country heavily dependent on trade, particularly in agricultural products, as almost 20% of the country's output is exported. This leaves New Zealand particularly vulnerable to slumps in commodity prices and global economic slowdowns. Its principal export industries are agriculture, horticulture, fishing and forestry making up about half of the country's exports. Its major export partners are Australia 22.4%, US 11.3%, Japan 11.2%, China 9.7%, Germany 5.2%. This is a dramatic change from 1965, when the United Kingdom received over half of New Zealand's exports.

Recent Economic History

Traditionally, New Zealand enjoyed a high standard of living with stable commodity exports, based not least on a strong relationship with the United Kingdom. In 1973, the United Kingdom joined the European Community and began to adhere to its trade policy and at the same time other factors such as the oil crises undermined the viability of the New Zealand economy. This lead to a protracted and very severe economic crisis, during which living standards in New Zealand fell behind those of Australia and Western Europe.

Since 1984, successive governments have engaged in major macroeconomic restructuring, transforming New Zealand from a highly protectionist and regulated economy to a liberalised free-trade economy. Pursuant to this policy, during the late 1980s and early 1990s the New Zealand Government sold a number of former government-owned enterprises including its telecommunications company, railway network, a number of radio stations, and two financial institutions. However, the government continues to own a number of significant businesses, collectively known as State-Owned Enterprises (SOEs). These SOEs are operated through arms-length shareholding arrangements and are required to operate profitably, just like privately-owned enterprises.

The current government's economic objectives are centred on pursuing free-trade agreements and building a "knowledge economy". In 2004, the government began discussing a free trade agreement with the People's Republic of China, one of the first countries to do so.

In recent years, New Zealand has been perceived as a vigorous economy and attracted international attention. After the economic restructuring of the 1980s, the New Zealand economy sank into a recession starting with the sharemarket crash in October 1987. The recession deepened in the early 1990s when unemployment topped 10%. However in 1993 the economy rebounded smartly and apart from a smaller recession in the late 1990s, New Zealand enjoyed a substantial economic boom up until 2005. New Zealand's unemployment rate is now the second lowest of the twenty-seven OECD nations with comparable data.

Ongoing economic challenges for New Zealand include a current account deficit of 9% of GDP, a net export of educated youth, slow development of non-commodity exports and tepid growth of labour productivity.