New Zealand: Economic Profile

Background:

New Zealand made the transition from a manufacturing-driven economy to a more consumer-driven economy in the late twentieth century. As a result, the service sector accounts for two-thirds of real GDP, with manufacturing contributing a dwindling share. The commodity boom since the mid-2000s catapulted the agricultural sector back to the top growth sector as well as the top export earner.

Since late 2008, New Zealand's economy has undergone much-needed rebalancing away from debt-fuelled domestic demand growth to more earnings-driven expansion. Easy credit and earnings optimism from the commodity boom enabled households to enjoy a consumption and residential investment spree that drove household debt and the current account deficit to perilous heights. After foreign investment flows into the high-yield New Zealand dollar shrivelled after a spike in bank funding costs and borrowing rates around the world, private consumption spending began slowing in New Zealand and the trade deficit began to narrow. The country experienced a trade balance in Q1 2011 as agricultural commodity prices, driven by emerging economies demand, boom to record highs. However, while a strengthening New Zealand dollar may temper inflation in the short term, it may cut rebalancing short by boosting import demand and destroying the price competitiveness of exports.