New Zealand's economy historically has been based on a foundation of exports from its very efficient agricultural system. Leading agricultural exports include dairy products, meat, 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 reserves of natural gas, although the largest natural gas condensate and oil field--supplying nearly 75% of the country's hydrocarbons--is expected to be tapped out by 2009. Based on recent natural gas exploration between Australia and New Zealand, natural gas production is projected to increase by 3.5% by 2020. Leading manufacturing sectors are food processing, wood and paper products, and metal fabrication. Service industries, particularly financial, insurance, and business services, form a significant part of New Zealand's economy. As of March 2008 New Zealand had 1,506,000 Internet subscribers, amounting to approximately 65% of New Zealand households, ranking above Australia, the U.K., and the U.S.
Since 1984, government subsidies including for agriculture were eliminated; import regulations liberalized; tariffs unilaterally slashed; exchange rates freely floated; controls on interest rates, wages, and prices 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. As a result, New Zealand is now one of the most open economies in the world.
In the statistical year ending March 2008 the economy was robust and grew by 7%, but recessionary pressure mid-year and the global financial downturn was expected to see the year end with an estimated 2008 GDP growth rate of 0.3%. Demand for new housing is in part driven by immigration, but the net increase in new arrivals has begun to slow. The net permanent long-term migration inflow to New Zealand in the year ending February 2008 amounted to 4,600, down from a net inflow of 13,200 in 2007. As of October 2008, the net outflow of New Zealanders as permanent and long-term (PLT) to Australia was 34,600. This was up from 26,500 the previous year, and was higher than previous peaks recorded in January 1989 (33,700) and December 1979 (33,400). Over the statistical year ending September 2008, the unemployment rate increased to 4.2%, the highest level since December 2003. In September 2008, there were 94,000 people unemployed, 16,000 more than a year earlier.
Traditionally, New Zealand's economy has been helped by strong economic relations with Australia. New Zealand and Australia 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 25% 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 has had a free trade agreement with Singapore since 2001. In July 2005, both countries joined with Chile and Brunei to form a Trans-Pacific Strategic Economic Partnership (TPP), liberalizing trade in goods and services between them. On September 22, 2008, comprehensive negotiations for the U.S. to join the TPP were launched, with talks scheduled to begin in early 2009. In April 2005, New Zealand initialed a free-trade deal with Thailand. In April 2008 New Zealand concluded a free trade agreement (FTA) with China and is negotiating an FTA with the Gulf Cooperation Council (GCC). New Zealand held its first round of the New Zealand-GCC FTA in Wellington in July 2007 with representatives from the Gulf states (Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates, and Oman). In December 2007, New Zealand and South Korea announced the beginning of a study group to explore the benefits of a bilateral free trade agreement. In June 2008, New Zealand and Japan established an economic working group to review their bilateral economic relationship.
New Zealand's top six trading partners (total trade) ending statistical year October 2008 included Australia, the United States, the People's Republic of China, Japan, Singapore, and Germany. Australia continued as New Zealand's principal export market, worth $7.2 billion with exports to Australia rising by 30%. The United States and Japan were New Zealand's second- and third-largest export markets, receiving $2.9 billion and $2.5 billion worth of goods, respectively. New Zealand's fourth-largest export destination was China with exports worth $1.7 billion in statistical year ending October 2008.
The U.S. is the second-largest trading partner for New Zealand, with U.S. goods and services accounting for approximately 9% of all imports. The New Zealand dollar reached a 24-year high of over U.S. $0.80 in July 2007 (the highest since the New Zealand dollar was floated), but as of December 2008 the Kiwi dollar was trading at U.S. $0.55. New Zealand's total imports from the U.S., as of October 2008, amounted to U.S. $3.2 billion. The market-led economy offers many benefits 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 and investment prospects are for whole aircraft and aircraft parts, medical or veterinary instruments, motor vehicles, information technology, hotel and restaurant equipment, telecommunications, tourism, franchising, food processing and packaging, and medical equipment. On the agricultural side, the best prospects are for fresh fruit, snack foods, and soybean meal.
New Zealand welcomes and encourages foreign investment without discrimination. The Overseas Investment Office (OIO) must give consent to foreign investments that would control 25% or more of businesses or property worth more than NZ$100 million. Restrictions and approval requirements also apply to certain investments in land and in the commercial fishing industry. OIO consent is based on a national interest determination. Foreign buyers of land can be required to report periodically on their compliance with the terms of the government's consent to their purchase. The OIO, part of Land Information New Zealand, took over the functions of the Overseas Investment Commission in August 2005. Full remittance of profits and capital is permitted through normal banking channels. As of March 2008, the U.S. accounted for 11.5% of all foreign direct investment in New Zealand, amounting to U.S. $7.72 billion.
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.
Information by U.S. Department of State