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New Zealand - Economy

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. The country has substantial hydroelectric power and reserves of natural gas. 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 July 2010, the number of broadband subscribers continued to grow, and exceeded 1.3 million. The number of broadband subscribers made up 72% of all Internet subscribers.

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.

After five consecutive quarters of economic retrenchment, the New Zealand economy grew by less than 0.1% over the June 2009 quarter, thereby ending its recession. Following another brief return to negative growth in September 2010 following the Canterbury earthquake, economic growth is forecast to remain weak in the short term as households go through a period of debt consolidation and government spending is further cut. New Zealand's AA+ foreign currency rating was put on negative outlook by Standard & Poor's in November 2010 as a result of increasing net foreign liabilities and household debt being an average 156% of disposable income. An export-led recovery is expected to lead to growth increasing to trend levels of around 2% in 2011, with reconstruction in Canterbury and the New Zealand's hosting of the Rugby World Cup in September 2011 expected to provide a much needed boost to the economy. New Zealand's unemployment rate jumped 6.5% from the September 2009 quarter to 7.3% in the last 3 months of 2009, its highest level in more than 10 years. The country's unemployment rate as of December 2010 stood at approximately 6.8%. New Zealand's unemployment rate was lower than the Organization for Economic Cooperation and Development (OECD) average of 8.6% and was ranked 12th of 27 OECD countries with standardized unemployment rates.

A 22% drop in the number of New Zealanders and long-term residents departing the country in 2009 produced the highest net rise in permanent and long term (PLT) migration since 2004. Overall PLT arrivals were down 4.6% again in 2010, with PLT departures, up 10% from the 2009 spike. The net PLT migration gain of 10,500 in 2010 was below the annual average gain over the last 20 years, and less than half the net migration recorded in 2009. The three main destinations for PLT outflow were to Australia (26%), the United Kingdom (6.4%), and the United States (2%). The highest net inflow of migrants in 2010 was from India (6,314, or 60%), mostly on student visas. The net outflow of NZ citizens was 20,900, up from 15,500 in 2009. The net inflow of returning NZ citizens was 31,300.

Following the largest inbound arrivals total ever recorded for any month recorded in December 2009, short-term arrivals were up another 1.7% in December 2010, a period which is usually driven by growth in the numbers visiting family and friends over the Christmas period. Overall 2010 visitor numbers were up 3% from 2009, and have increased 41% over the 10 year period from 2000. Arrivals from Australia were down 0.9% for December 2010 compared with the same month a year earlier, but were up 0.7% over the year. Despite record numbers of American visitors to New Zealand for short trips in December 2009, a decrease in cruise ship passengers saw the number of American visitors drop by 14.4% for December and 7% for 2010. Overseas visitor arrivals numbered 2.5 million in the year ended December 2010. This was a 2.7% decrease from the December 2009 year. The largest sources of visitors to New Zealand in the year ended December 2010 were Australia, the United Kingdom, the United States, China, and Japan.

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 23% 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. In December 2009, President Barack Obama announced that the U.S. was interested in re-engaging on TPP. Four rounds of talks have been completed, with the fifth round scheduled for February 2011 in Santiago.

New Zealand concluded a Closer Economic Partnership (CEP) agreement with Thailand that entered into force on July 1, 2005. In April 2008 New Zealand concluded a free trade agreement (FTA) with China. In October 2009, negotiations concluded on an FTA with the Gulf Cooperation Council (GCC--made up of Bahrain, Oman, Kuwait, Saudi Arabia, the U.A.E., and Qatar). The New Zealand/Hong Kong, China CEP was concluded in November 2009, and the agreement came into force in January 2011. 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. The first round of FTA negotiations between New Zealand and South Korea took place in Seoul in June 2009. In June 2008, New Zealand and Japan established an economic working group to review their bilateral economic relationship. New Zealand and India agreed to undertake a joint study into the implications of an FTA in 2007. That study was completed in February 2009, and in January 2010 the two governments announced that negotiations would commence between their countries. In August 2010 an FTA came into force between New Zealand and Malaysia. In 2011 negotiations will commence between New Zealand, Russia, Belarus, and Kazakhstan for an FTA, with an aim to have negotiations completed by the end of the year.

New Zealand's top six trading partners (total trade) as of December 2010 included Australia, the People's Republic of China, the United States, Japan, the United Kingdom, and the Republic of Korea. In 2010, Australia was New Zealand's principal export market, totaling U.S. $7.57 billion, and making up 23% of New Zealand's total exports. China became New Zealand's second largest export market at 11% of total exports, up 33% from 2009 with a total of US$ 3.65 billion. The United States slipped to third place, with a 4.9% drop from 2009 totaling U.S. $2.84 billion, and making up 8.7% of New Zealand's total exports.. As New Zealand's fourth-largest export destination, export trade with Japan was valued at U.S. $2.5 billion. Australia remained New Zealand's largest source of merchandise imports in the year ended December 2010, accounting for 18% of total imports. Total imports from Australia were valued at U.S. $5.8 billion. China was New Zealand's second-largest source of imports, with a value of U.S. $5.1 billion, or 16% of total imports.

The United States is the third-largest trading partner for New Zealand, with U.S. goods and services accounting for 10.3% of all imports totaling NZ $4.4 billion (U.S. $3.3 billion). 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 January 2011 the Kiwi dollar was trading at U.S. $0.76. 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 screens foreign investment that falls within certain criteria. Under the auspices of the Overseas Investment Act 2005, New Zealand's Overseas Investment Office (OIO) screens foreign investments that would result in the acquisition of 25% or more ownership of, or a controlling interest in, "significant business assets" (significant business assets are defined as assets valued at more than NZ $100 million). Government approval also is required for purchases of land larger than 5 hectares (12.35 acres) and land in certain sensitive or protected areas, or fishing quotas. If the land or fishing quota to be purchased is owned by a company or other entity, approval will be required if the investor will be acquiring a 25% or more equity or controlling interest. Following a Ministerial Directive in December 2010, future bids to purchase sensitive or protected areas will come under even greater scrutiny to ensure any investment is of economic benefit to New Zealand. Full remittance of profits and capital is permitted through normal banking channels. As of March 2009, U.S. foreign direct investment in New Zealand amounted to U.S. $2.3 billion (NZ $3.3 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.