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.
25 Comments
This is a good article with excellent data points, however, is the "REAL" inflation is applied then we effectively have minimal GDP growth.
There is "No Way Out" apart from the "China Syndrome"
The politicians of all parties lack the DNA, critical thinking, acumen, fortitude and honesty to stop the decline in the prosperity of NZ.
With the current trend we will be a developing nation is 10-20 years from now.
The solution for developing nations is the partner with China, attracting foreign investment and expertise.
As we cannot articulate a strategy for growth, (have a high debt load @ 45% of GDP) and considering that China is our dominant export market we should give consideration to this.
This could be a Win/Win as we move a Multi-poloar world.
China has the best implementation of AI with capital to invest.
A high debt load?!? The NZ Govt has a net positive financial worth - almost unheard of for a country that runs persistent current account deficits.
Financial worth isn't the measure now, and that is what renders the article interesting, but historical.
A good read is a book by someone who also misses the point, but who misses it in intelligent appraisal: The Rise and Fall of American Growth (Gordon/Princeton 2016).
None of these folk factor-in the 2nd Law of Thermodynamics, thus ignore entropy and the hard fact that efficiencies have hard limits. Thus the inexorable post-WW2 tailing-off.
Being energy-blind, all these folk end up as Woodford does above - mixing their metaphors in blind hope 'It will need hard work.' Ironic - I see that too, but as: It will need a source of higher EROEI energy - which ain't coming.
Those covid GDP numbers were a misleading nightmare. Remember: If Govt gives money to businesses to keep them afloat that 'subsidy' is deducted from GDP, whereas if Govt buys something from a business that spending is included in GDP. The impact of this from 2020 to 2022 was really significant. Businesses were getting actual cash, paying workers, and posting profits, but this was discounted from GDP because the source of the income was a Govt 'subsidy'! Here's the GDP per capita figures without deducting the subsidy. Quite the difference!
If you look at the change in GDP using the same 'subsidy is still spending' data, you get a totally different picture - one that, in my view, better reflects the economic reality of the time.
On the wider point, I would argue that we have been playing the economy game on cheat mode since the 1980s. Our periods of growth have basically been enabled by a combination of cheaper fossil fuels (1984-1995 and 2008-2020), imports from an increasingly efficient and determined Asia, major expansions of private debt (1991 to 2008), and the racheting down of interest rates between 2008 and 2021 to keep that debt affordable. Our position as second tier economy with strong institutions and (private debt-fuelled) growth kept our currency strong and the party went on.
Around 2017, imports stopped getting cheaper in real terms and our currency is now weakening with our economy - thanks to the medieval monetarists at RBNZ and the band of idiots in charge of economic policy. We are so ill-prepared for the next year or so it's untrue - and we are sleep-walking into decline.
Before PDK jumps on my head, I should say that IMHO GDP is a measure of a combination of energy use and the rate at which we expand the NZ balance sheet - i.e. it's a really poor measure of progress. But, hey ho.
Very clear-headed explanation Jfoe
Great post as ever.
I'm really struggling to see where the significant drivers of economic growth are going to come from... There's nothing left in the 'cheat mode' playbook
The whole ponzi economy has reached its inevitable end.
The only viable options are state-led*, but the brains and skillsets aren't around in any of major parties to plan and execute effectively.
*eg. a large scale house building program, focused as much if not more on owner occupier, affordable housing as well as social housing, predicated on state-run prefabrication plants churning out good, standardised designs en masse, using NZ's abundant timber resource...
Also why GDP got a $40 billion fillip between 2012-2016. In GDP terms something very "productive" happened in 2011.
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.
Here in lies the problem getting the government (any NZ government) to wake up to the productivity issue.
Just last week, Christopher Luxon responded to Shane Jones' comment on the FTA deal with India by saying (to paraphrase), "we need continuing immigration because it's good for economic growth and society".
As anyone who has a reasonable handle on NZs long term output per capita growth knows, immigration on the whole has not been good for our economic prosperity. We've gone backwards relative to other OECD nations, hence why we've slipped down the list.
Nicola Willis believes giving tax breaks to businesses who want to buy a new digger or tractor lifts our productive output, so it must be a great idea.
This is the mentality we're dealing with. These are the people running our country who have little understanding of what drives economic output and how best to make material gains over the long term.
Question is, who is feeding them this misinformation? We're running vicious cycle of unfounded beliefs. Changing this is the first step, IMO.
Question is, who is feeding them this misinformation? We're running vicious cycle of unfounded beliefs. Changing this is the first step, IMO.
Bureaucrats, academia, and media are usually indoctrinated in the prevailing dogma.
We're on a hiding to nothing.
Keith,
"The world has been experiencing a productivity slowdown, from which New Zealand has not been exempt. This matters because sustainable improvements in our living standards depend upon productivity. Productivity is also a key driver of the Treasury’s economic and fiscal forecasts and long-term fiscal projections, which underpin its advice about fiscal policy and fiscal sustainability. This Treasury Paper is an exploration of recent trends in productivity and the potential drivers of the slowdown. Both labour and multi-factor productivity (MFP) growth have been slowing since the turn of the century in advanced economies"
That quote was taken from a 2024 Treasury paper. We are not alone. If we look at the OECD. we see that labour productivity growth has fallen from some 2%pa to around 0.80%pa since the turn of the century.
Did you mean to suppl a link to the Treasury paper?
Here is the paper I referred to; The productivity slowdown: implications for the Treasury’s forecasts and projections New Zealand Treasury Paper May 2024
If we look at the world we can see that the global population increased a third since the turn of the century. >80% of that increase are too young, poor & uneducated to be anything but a per capita productivity negative.
Is it fundamentally a productivity question or a population question? If the latter then the next question is why
1. Populations expand commensurately with food-supply. Of all species, including ours. Keith is part of the temporary draw-down of fossil energy into food energy, which is why we are in overshoot. He won't want to see that, of course...
2. Productivity is energy-efficiencies; limited physically, which is why the slowing down.
Sigh
Food production is at record levels and children peaked a decade ago. Other species don't have birth control, sex selective abortion and wokeism. The world [edit] is more complex than a petri dish.
"The world (sp?) is more complex than a petri dish".
Spoken like a true short visioned inhabitant of a petri dish, drunk on agar.
This is the end of China
https://rhg.com/research/chinas-demographic-future/
Perhaps the most shocking statistic that China published last year was the total number of births. At only 7.92 million in 2025, total births were less than half of the number a decade ago. Demographic headwinds to household consumption growth are a “gray rhino” for China’s economy—a clearly visible threat that is nonetheless neglected. The 2025 data pointing to double the population loss from 2024 suggest the rhino is now charging directly at China’s political and economic ambitions. Our estimates of trends in death rates suggest that China will lose nearly 60 million people in the next decade, almost the size of France, with the annual decline in 2035 to hit 7.6 million.
The headlines are bad, the regional breakdown is worse. The country’s most developed provinces are seeing falling populations, which will impact overall consumption and the future productivity of the labor force. The impact on household consumption is obvious, but the larger problem for Beijing may be the hit to social security funds. The fiscal subsidy to social security funds rose to a record 2.9 trillion yuan last year, or 10.1% of general budget spending, and appears set to rise in the future.
NZ, with tfr 25% below replacement, sans immigration, will see population peak in the early 2040s - [unnecessary pejorative removed. Ed]
A dependency ratio of 2 is baked in for the end of century, a quarter of what it was in the 1950's.
Not a recipe for growth.
China population is predicted to halve by the end of this century
https://ourworldindata.org/data-insights/india-china-europe-and-the-uni…
South Korea, which recently broke all records for low fertility. The country now has a TFR of just 0.8, which means that ‘one hundred grandparents will produce 40 children, who will in turn create 16 grandchildren,’ so that in two generations, 84% of the population will disappear.
As one Twitter wit put it, ‘in 2100, Koreans will be remembered as a quasi-mythical people who emerged from a period of violent division, made TVs 96,000% cheaper and then inexplicably vanished.’
I recall reading some time ago the prediction that the global population will top out in the 9-10 billion range. Not a bad prediction at this point.
It's uncanny how much China is treading the same path as Japan.
Or rodents in the Calhoun experiment for that matter.
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.
For comparative purposes, on ABS chain‑volume measures from start of 2020 to end of 2025, real GDP per capita in Aussie has grown at roughly 1.5% per year on average since 2020, with most of the gains concentrated in 2021–22 and very weak per‑capita growth through 2023‑24 and 2025.
I think this a useful comparison given that Aussie immigration is off the hook.
Even then, I think CAGR is overstated because the GDP deflator is always understated if using the CPI.
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