New Zealand’s economy is facing significant challenges as it continues to recover from the impacts of the Covid-19 pandemic. Recent reports show that the country’s wage growth has fallen to one of the lowest in the world. When looking at the growth of real GDP per person over the past decade, New Zealand ranks 25th out of 43 countries, and it drops to 37th when focusing only on the last two years.
Only a handful of countries—Germany, Canada, Luxembourg, Austria, Ireland, and Estonia—are performing worse than New Zealand during this recent two-year period. In contrast, Israel leads for the decade, while Turkey has been at the top for the past two years.
Gareth Kiernan, chief forecaster at Infometrics, pointed out that New Zealand is now grappling with the economic fallout from experiences during the pandemic. He noted that the recovery is slow and uncertain. The construction industry had hoped to see a rebound in residential building permits, but it seems that conditions may remain challenging for a while.
Kiernan explained that New Zealand had enjoyed substantial growth during the pandemic due to low interest rates and extensive government spending, but this has left the economy feeling sluggish as it transitions back to regular levels of activity.
Mike Jones, chief economist at BNZ, echoed these sentiments, stating that New Zealand’s job market is currently less robust compared to other countries like the US and Australia. This decline in labor demand has resulted in slower wage growth. According to a recent report, the salary growth in New Zealand was 2.2% year-on-year, trailing behind the US (2.4%), Australia (3.3%), and the UK (5.9%).
Jones highlighted that ongoing structural issues, including low productivity, are likely contributing to the slow wage growth over an extended period. He mentioned that while there are signs of improvement, New Zealand has been lagging in terms of productivity when compared to its peers.
Westpac’s chief economist, Kelly Eckhold, noted that while New Zealand’s past performance was strong, it has recently struggled, similar to Canada. The US, however, has maintained a higher GDP per capita. Eckhold acknowledged that New Zealand has begun to see some improvement in GDP, especially in recent quarters, but emphasized the longer-term challenges.
Eckhold pointed out that various sectors are responding differently to the current economic landscape, with some weathering the downturn more effectively than others. He attributed some of this resilience to factors like competitiveness, while also noting New Zealand’s geographical challenges that put it at a disadvantage relative to many European countries.
Eckhold also compared New Zealand’s economy to the more flexible and competitive US market, where rapid changes can lead to higher productivity gains. He acknowledged that while the US economy benefits from such flexibility, it can also come with trade-offs for workers.
As New Zealand navigates its post-Covid situation, it will need to address these structural issues to revitalize wage growth and boost economic performance.
