Keith Woodford traces the structural decline in per capita economic growth, with the average Kiwi having made minimal progress in their income-earning ability from early 2020

New Zealand’s per capita decline in economic growth rate is more than just a phase of the economic cycle. The per capita reduction in growth is now structural.  The average Kiwi has made minimal progress in his or her income-earning ability since just before COVID struck in early 2020. Per capita exports have declined because of big population increases, such that there has been no overall increase in per capita export income since 2014.

In this article I focus on data that tell us what has been happening. I also focus on data that tell us that the future is going to be difficult. The data I use come from the Reserve Bank (HM5 series) and from interrogating Infoshare at Statistics NZ.

My starting point in researching for this article was to look at what has been happening to gross domestic product (GDP) over the last 35 years since 1990, measured in inflation-adjusted terms.

GDP is far from a perfect measure of citizen income, but it does measure, for better or worse, the overall size of the economy. I recall first learning in Stage 1 economics many decades ago that GDP equals C+I+G+(X-M).  It remains seared on my brain. Restated in words, gross domestic product equals consumption plus investment plus government expenditure plus exports minus imports.

From the start of 1990 through to the end of 2024, GDP grew by a factor of 2.7. However, per capita economic growth rose by a lesser factor of 1.7, with the difference being due to the increased population that the economic growth had to be spread across. 

I had a hunch that the growth rate in per capita GDP has been in a long-term decline and the data confirm this. In the 1990s, the inflation-adjusted annual per capita growth rate was 1.93% per annum. Then in the decade from 2000 through to December 2009 it averaged 1.75% per annum. Then in the decade through to December 2019 it averaged 1.64% per annum.

Then comes the real kicker. Since December 2019 the per capita growth rate in GDP has only been 0.75% per annum. In the last two years the inflation-adjusted per capita GDP has actually declined by just over 2%.

It might provide little comfort to those Kiwis who are struggling, but the data do support the notion that the average Kiwi is very much struggling to get ahead. If you are struggling, then you are a typical Kiwi.

Looking back to the 1990s, this was the period when New Zealand saw benefits and recuperation from the painful experiences of the preceding 15 years back to 1975. With hindsight, it is obvious that New Zealand was poorly prepared for Britain joining the European Union (EU) in 1973.  Subsequent subsidies for exports did not help and made a difficult situation worse.

By the mid-1980s, it was obvious that the New Zealand economy needed a fundamental restructure and that is what it got, first under Roger Douglas and then under Ruth Richardson as Ministers of Finance.  Whether the restructure could have been done with less pain, as in Australia, is something I still wonder about. But there can be no doubt that Britain joining the EU, and the consequent loss of British markets for meat and dairy, knocked the foundations out of the New Zealand economy.

I spent most of both the 1980s and 1990s overseas with my family, watching from afar, first in Fiji, then based in Australia, but also working on projects in Asia. Then, at the turn of the century the Woodfords returned to New Zealand, linked to my being offered the position of Professor of Farm Management and Agribusiness at Lincoln University.

Part of the attraction of coming back to New Zealand was that the economy was coming right and I liked the thought of being part of agribusiness developments, including development of agribusiness markets in Asia, and linking those developments back to on-farm responses.

There was also the attraction of getting closer to the South Island mountains.  But it did take some effort to convince our children that this was the right decision for the family, and the adults had to deliver a proxy vote on behalf of Bonnie the cat to get the vote over the line. 

There was also no doubt in our minds that despite all the good things about New Zealand, we were coming back to a country where salaries were lower than in the Lucky Country, and I was also uncomfortable with the levels of inequality in segments of society.

For this article, to understand something of what was driving the economic growth between 1990 and the end of 2024, I turned to the Reserve Bank data on exports of goods and services. To clarify, the biggest category of merchandise exports is dairy followed by meat. The biggest category of services has been tourism with international students next but far behind.

There should be no argument that export income from goods and services is a key driver of economic growth and country wealth. The other important component is internal productivity, with this being driven by new technology. Neither of these drivers rise automatically.

The 1990s were the decade when things started to come right for exports. Physical exports increased by 51% in inflation-adjusted terms and income from goods plus services increased 66%.  Both production and marketing came to the rescue.

When expressed on a per capita basis, exports of goods and services increased by 4.8% per annum over that decade through to the turn of the century. With hindsight, it can be seen as a remarkable decade. However, for many it was still a time of struggle as New Zealand was coming from such a low base at the start of that decade.

In the first decade of this century the growth in exports of goods and services continued, led by dairying and also greatly aided by the developing trade with China. However, the rate of export growth was slowing.

In that decade through to December 2009, the national volume of merchandise exports as measured by the Reserve Bank increased by 24%.  National inflation-adjusted export income for goods and services increased by 37%. Per capita inflation-adjusted income from goods and services rose on average by 2.1% per annum. This was despite the last two years of that decade being affected by the global financial crisis.  

Progress continued in the decade through to December 2019 with national exports of goods and services increasing by 33%, while the decadal per capita increase in these exports was 17.3%. The per capita annual increase in exports of goods and services was 1.6%.

Alas, as with GDP, the growth in exports of goods and services since pre-COVID 2019 has been dismal. At a national level, export of goods and services has shown no overall growth in the five years through to December 2024. Per capita exports of goods and services declined by 8.6% during this period, driven by the increasing population as the denominator.

A key message in the above sets of numbers is that for a long time New Zealand grew its export industries at a faster rate than population increases. Accordingly, per capita living standards, as measured by GDP, continued to grow.  But those days are well past.

Indeed inflation-adjusted per capita exports of goods and services reached a peak in 2014. Between 2019 and 2024, on a per capita basis we slid back down the slippery slide, back to where we were in 2014!

The big question going forward is where can future growth come from to support a growing population?  How can export industries that are largely static or sliding backwards be revitalised? Where are the new export industries?    

Perhaps the most urgent question is whether New Zealand needs a coherent population policy?

In answering that question, it is very hard to see an ongoing population increase as being the solution to the need for more exports.  However, it is very easy to see an increasing population leading to an ongoing increase in the demand for imports. That is where we are right now.

The consequent suggestion is that inward migration needs to be highly targeted. Clearly, we are not training enough health-care professionals. Also, without migrant seasonal labour from the Pacific, we would struggle greatly with seasonality issues in our primary industries. What are the other industries that have a need for migrant labour?

Within the data and the ongoing outlook there is a very fundamental message: per capita economic growth does not occur unless it is tended. Linked to this, it is very doubtful as to whether New Zealand’s current economic settings align with sustained per capita economic growth.

The first step is to acknowledge that we have a big problem. Only then can we search for pathways to the future.

*Keith Woodford was Professor of Farm Management and Agribusiness at Lincoln University for 15 years through to 2015. He is now Principal Consultant at AgriFood Systems Ltd. You can contact him directly here.