Executive Summary
already slowed noticeably prior to the global shock impacting (Figure 1).
only way to deliver the incomes and
opportunities that New Zealanders
aspire to.
factors acted to constrain growth. An
overheated domestic economy, fuelled
by increasing government expenditure,
gradually increased pressure on
available resources and resulted in
persistently high inflation in the non-
tradable sector. Monetary policy
tightened during this period, with
higher interest rates encouraging the
New Zealand dollar to appreciate.
agriculture debt rising sharply over much of the 2000s. This rise was more than matched
by increasing house and farm prices, so that net wealth increased. However, house and
farm prices rose well above fundamental determinants, such as income and farm returns.
deficit to 8% of GDP on average from 2004 to 2008, before it fell during the recession.
The savings of foreigners were increasingly used to finance these deficits, so that our net
external debt position grew to $168 billion, over 90% of GDP.
years leading up to recession featured
a divergence between different
sectors. Output from exporters and
those that directly compete with
imports, often termed the tradable part
of the economy, has not grown since
2005 and is currently around 2002
levels. This includes sectors such as
agriculture, horticulture, mining and
resources, forestry, fishing, food
manufacturing and tourism, all areas
where New Zealand should be
benefiting from its natural advantages.
administration grew strongly. This divergence was a drag on productivity growth.
New Zealand, The Treasury
