Per capita economic growth is a big challenge for New Zealand in the years ahead, says Keith Woodford

In the 20 years from the turn of the century through to December 2019, the New Zealand economy, as measured by GDP, increased by 74%. The average rate of growth was 2.8% compound per annum.

During this period the population increased by 29.7%. This means that per capita GDP rose by 34.2% over those 20 years, giving an average per capital compound annual increase of 1.5%.

Then COVID came along and many things changed.

From December 2019 through to December 2025, the economy grew by only 8.3% in total while the population increased by 6.3%.  Hence, on a per capita basis, total economic growth for the six-year period was a measly 2.0%. On a per capita basis, economic growth averaged only 0.3% per annum.

Note that these and all other growth figures in this article are in ‘real’ terms. In other words, inflation has been accounted for. And for those readers wondering where these figures come from, the GDP data comes from the Reserve Bank’s M5 series and the population data comes from the Statistics Dept.

So, why has economic growth been so minimal over the last six years, averaging 0.3% per capita on a yearly basis, versus 1.5% per annum for the preceding 20 years?

Can this be explained by COVID?

The answer is that it cannot be explained by COVID.

The facts are, that when COVID arrived, the economy dropped 10.4% in the second quarter of 2020, and then increased 14.1%% in the very next quarter.

Similarly, the economy dropped 4.3% in the third quarter of 2021 and then increased 4.1% in the following quarter.

Both of these GDP reductions coincided with general lockdowns that prevented many people from going to work. But in each case, the economy quickly bounced back.

There is no evidence of any permanent underlying structural loss of capacity caused by COVID.

My next inquiry was to search for evidence that the most recent six-year period was simply the down-stage of a short-term economic cycle.

For that to be the case, there would need to be evidence that unemployment had risen significantly between the start and the end of the six-year period. However, the evidence is that back in December 2019 the overall unemployment was 4.9%, declining to 3.3% in December 2022, and then rising steadily to 5.4% in December 2025.  

Right now, we have got into a great muddle with high unemployment telling us we need to stimulate the economy, but inflation levels telling us that we need to put the brakes on.  Oh what a mess!

However, even if we could reduce unemployment from the current 5.4% to the 15-year minimum of 3.2%, then it is hard to see how that would raise GDP by even 2%. The benefits of getting unemployment significantly lower would be social rather than directly economic.

Bringing all of this information together, I see no ready alternative to the conclusion that that there has been a structural shift towards low economic growth. It leads to the question as to what economic growth is in the pipeline, and that leads to the question as to what else we should be doing?

Somewhat surprisingly, Treasury still expects significant growth in the next three years.

Treasury’s latest advice to Government presents three scenarios based on oil price uncertainty. Remarkably, all three scenarios suggest that economic growth over the three-year period 2025 to 2028 will total 6.9% to 8.3%, with the range in values reflecting crude oil prices being in the range of US$110 to US$180 per barrel. 

That suggests that Treasury must be relying on something they think they can see on the near horizon. What is it that they think they can see?

My assumption is that they must in part be relying on population growth, perhaps of the order of 1% per annum. That may well lead to ‘ponzi-type’ growth of about 1% per annum but it is hard to see how that leads to per capita improvement in living standard.

Any further per capita growth beyond this requires more exports to earn more foreign exchange to pay for imports.

What we can say with confidence is that primary industries, which currently are the source of more than 80% of our exports, are constrained from major expansion. There is no more land to use. 

Hence, if primary industries are to lead us into a more prosperous future it has to be through intensification, or building of brands with associated premium prices, or raising prices in some other way.

There are of course still some options, and in my now part-time professional life I am myself working on some of those. But what I know is that it is going to be much harder than it was in the 20-year period from the start of 2000 through to the end of 2019.

I remember clearly what lay before us in 2000. It coincided with a family decision that the Woodfords would come back to New Zealand after 20 years of living overseas.

Coming back to New Zealand meant a big drop in salary but the opportunities for our primary industries were considerable. There were lots of new technologies, plus new market opportunities that lay ahead of us at the time in the primary industries. Those opportunities were not hard to see and I was excited.

I emphasise that the next 20 years in front of us are not going to be so easy as those first 20 years of this century.

It is also notable that the innovations currently occurring in the primary industries are largely about cost and labour efficiency. We don’t need more people to capture those benefits.

That conclusion leads inevitably to extending the search for growth to the 18% of export industries that lie outside the primary industries. That includes new industries using nature’s renewable supply of energy. Those opportunities are both exciting and challenging.

Clearly there are some exciting things that have already been happening based on Kiwi ingenuity and determination. Fisher and Paykel Healthcare, Xero, RocketLab and Halter come immediately to mind.

However, all of these companies rely very much on overseas capital and much of the employment is overseas. It is not easy to capture a lot of the benefits back in New Zealand.

I see myself as very much a ‘glass is half full’ type of person rather than a ‘glass is half empty’ person. Right now, I am still in the ‘half-full’ camp.

However, my concluding message is that economic growth in New Zealand on a per capita basis over the next 20 years should not be assumed. It will need hard work.

*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.