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2009 OECD Economic Surveys: New Zealand 2009

image of OECD Economic Surveys: New Zealand 2009

The global crisis is hitting New Zealand at a time when difficult domestic adjustment is underway. Its economy is among the most indebted in the OECD. Falling asset prices and a slump in credit demand mean that a process of debt reduction has started. Nevertheless persistent, large current-account deficits and a high external debt render the economy especially vulnerable.  In this report, OECD projects that the economy will remain in recession through 2009, and recover only hesitantly in 2010.  The report includes coverage of the macroeconomic situation, structural policies, and a detailed examination of health care reform.

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Structural policies to overcome geographic barriers and create prosperity

New Zealand’s living standards remain well below the OECD average. This is entirely attributable to persistently low labour productivity, which in turn is related to economic geography as well as structural policy factors. The small size and remoteness of the economy diminish its access to world markets, the scale and efficiency of domestic businesses, the level of competition and proximity to the world’s technology frontier. This points to the need for a “New Zealand policy advantage”, that is, a set of structural policies attractive and welcoming enough to overcome the geographic handicap and attract the drivers of prosperity – investment, skills and ideas – to New Zealand. The reforms of the 1980s and 1990s laid much of the groundwork for creating this advantage and for a pickup in productivity growth. But in recent years, New Zealand has lost ground relative to its OECD peers. The reform focus has shifted away from growth and the government has introduced a large quantity of often poor-quality regulation. Policies should be refocused around the productivity goal in a number of areas, beginning with those covered in this chapter, namely international trade, the business climate for domestic and foreign investment, public-sector efficiency, infrastructure, innovation and natural-resources management. This chapter also evaluates the recently legislated emissions trading scheme through a productivity lens.

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