PEST Analysis: New Zealand

C ountry Report | 26 Apr 2022

New Zealand’s ranking makes it ‘free’ for economic freedom, although higher government
spending has lowered its overall score. Economic recovery is on track, whilst unemployment is
falling. Nevertheless, inflation persists, caused by external influences and the housing market.
Ageing is likely to pressurise state finances and the consumer market is small, but the older
demographic will remain key to consumer spending. Internet and mobile usage is very high,
but innovation is somewhat lacking.
PEST ANALYSIS
PEST analysis (political, economic, social and technological) describes a framework of macro-
environmental factors assessed as a strategic tool for environment scanning, understanding
risks and opportunities, market growth or decline, business position, and potential and
direction for operations, helping companies to become more competitive.

Chart 1 Main PEST Points in New Zealand

Source: Eurom onitor International

POLITICAL ENVIRONMENT
Opportunities
‘Free’ for Economic Freedom: Adherence to democratic ideals and free market economics
has enabled New Zealand to post a superior performance in the Index of Economic Freedom
2022, where it remains in the exclusive group of ‘free’ countries and ranks in the top five
globally. Rule of law pillars, such as government integrity and judicial effectiveness, have
scored extremely favourably, with some of the best rankings globally, given the existence of
an independent judiciary and a government that has worked towards achieving the best
possible outcomes for its citizens. An example of this is the handling of the Coronavirus
(COVID-19) pandemic by the Ardern administration, which has achieved a particularly low
death rate.
Ranks first globally for corruption: With a ranking of 1st globally in the Corruption
Perceptions Index 2021, a position that it has maintained since 2019, New Zealand
demonstrates that the country is not negatively affected by graft. Stringent anti-corruption
measures are in place to deter graft, with punitive financial and judicial penalties. A lack of
corruption is of great benefit to businesses operating in New Zealand, as it does not raise
their costs such as bribing government representatives to gain contracts or favours. Limited
corruption is also a sign of a successful democracy, where the executive branch of
government is not abusing its powers.
Peaceful country: In the Global Peace Index 2021, New Zealand continued to rank in
second place globally, highlighting the peaceful nature of its society, where militarisation is
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contained, leading the country to rank fourth globally for this pillar, although spending on its
military and weapons has been rising. Limited protests and low military activity enable citizens
to conduct their daily activity without undue fear from disruptive forces, whilst this also
facilitates the smooth running of business operations.

Challenges
Worsening state finances: Owing to the shortfall in government revenue and the
implemented fiscal stimulus measures aimed at mitigating the adverse impact of the
coronavirus pandemic on the economy, the budget deficit widened to 7.3% of total GDP in
2021. The wage Subsidy Scheme and Resurgence Support Payments were the main fiscal
measures designed to support the economy and consumers. Consequently, over the year,
government expenditure outpaced any increase in revenues. Spending on social security and
welfare remained the largest category of New Zealand’s government spending in 2021,
accounting for 26.2% of total state expenditure. As a result, the public debt-to-GDP ratio
increased over the year to 51.2%, compared to the developed countries average of 121%.
Deteriorating state finances have also contributed to falling scores in the Index of Economic
Freedom 2022, where government spending is New Zealand’s worst-performing pillar.
Nevertheless, given that the public debt ratio is under 60.0% of GDP, it remains sustainable
and is not a threat to the stability of the government, whilst allowing the state fiscal space
to increase spending to deal with long-term issues such as an ageing population.

Chart 2 Political Environment Dynamics in New Zealand

Source: Eurom onitor International from the Heritage Foundation/International Monetary Fund
(IMF)/Governm ent Finance Statistics (GFS)/Institute for Econom ics and Peace/Transparency International/W orld
Bank /Eurostat/national statistics

ECONOMIC ENVIRONMENT
Opportunities
Strong economic recovery: Following the COVID-19-pandemic-induced recession in 2020,
New Zealand’s economy surged in 2021, positing annual real GDP growth of 4.2%. The swift
economic recovery is a result of effective virus containment measures, expansionary
macroeconomic policies, and large governmental stimulus to protect jobs and income. During
the year, the country’s economic performance registered improving domestic demand, thanks
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to elevated private spending, as well as growing public consumption and gross fixed capital
formation (GFCF). However, annual real GDP growth is expected to slow in the short term,
owing to supply chain constraints and higher energy prices caused by the Ukraine-Russia
conflict.
Low unemployment: The jobless rate in New Zealand fell in 2021, as economic sectors
recovered from the initial negative impact of the COVID-19 pandemic. Economic recovery has
been so strong that is has created a shortfall in the number of workers available to fill
vacancies, which has been exacerbated by closed borders preventing migrants from filling
gaps in the jobs market and pushing wages up. In the medium term, the unemployment rate is
expected to normalise, but will remain below the world average, highlighting the strength of
New Zealand’s employment landscape.
FDI intensity could rise: Foreign direct investment (FDI) inflows in New Zealand exceeded
the developed countries average, standing at 2.0% of GDP versus 1.0% respectively in 2020.
The passage of the Overseas Investment Amendment Act (No.3) (the No.3 Act) in 2021 is
likely to boost FDI going forward. Foreign investors can own a greater share of New Zealand
companies, raising their stake to 25.0% from 10.0%. ‘Pre-verification’ of existing investors will
also quicken the process of acquisitions, whilst COVID-19-related restrictions introduced in
2020 have also been removed. The New Zealand government is concentrating on attracting
investment into the forestry, infrastructure and digital sectors, whilst the Comprehensive and
Progressive Agreement for Trans-Pacific Partnership (CPTPP) is expected to boost FDI, as
investments of less than NZD200 million (USD130 million) will not require state approval.

Challenges
Inflationary pressures mounting: As a result of rapid economic recovery, inflation started to
escalate in New Zealand in 2021. This was accompanied by overheating in the property
market that is pushing up housing prices to unaffordable levels. Furthermore, a tight labour
market is placing upward pressure on wages, which will also fuel inflation, whilst the war in
Ukraine is causing elevated energy prices that could see a further hike in inflation in the short
term. Even before the conflict, the Reserve Bank of New Zealand had started to raise the
benchmark interest rate to combat inflationary pressures and control rapid economic
expansion, with the rate being increased by 0.75 percentage point since October 2021 to
stand 1.0% in February 2022. The central bank has indicated that interest rates could rise
further this year to fight inflation.
Relatively undiversified export base: With nearly two thirds of total goods exports
attributable to animal and animal products and other commodities, New Zealand demonstrates
that is export base is relatively undiversified and susceptible to swings in global commodity
prices. A slowdown in global demand, as higher prices squeeze consumers’ purchasing power,
coupled with the trend towards lower meat consumption in developed nations, could also
negatively affect New Zealand’s animal products exports going forward.

Chart 3 Economic Environment Dynamics in New Zealand

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Source: Eurom onitor International from Eurostat/O ECD/United Nations (UN)/International Monetary Fund
(IMF)/W orld Econom ic O utlook (W EO )/International Financial Statistics (IFS)/International Labour O rganisation
(ILO )/UNCTAD/International Merchandise Trade Statistics/national statistics

SOCIAL ENVIRONMENT
Opportunities
Older consumers to dominate top income band: By 2040, the consumer group aged 65 will
be prevalent in the top income band (those with an annual gross income over USD250,001),
following the global trend of increasing importance of silver consumers that are saving less in
the latter part of their lives. The upcoming elderly generations are the healthiest, wealthiest
and best educated to date, and they are set to remain active consumers and workers. This
could also boost luxury spending in New Zealand over the forecast period.

Challenges
Inequality widening: Over 2022-2040, Social Class E, the lowest income class, is forecast to
expand at the fastest pace across social classes, increasing by 22.2% over that period.
Income inequality in New Zealand is to remain elevated by global standards over this
timeframe and is expected to further increase owing to the faster growth of Social Classes A
(the highest income class) and E, creating a larger gap between income earners in New
Zealand. Aiming to combat the growing inequality trend, the government signed a new 39.0%
top tax rate into law in December 2020, taxing the country’s highest earners (those earning
more than NZD180,000 per year). Increased taxes are expected to affect the 2.0% of New
Zealand’s richest and net an additional NZD500 million a year for the country’s treasury.
Maoris experiencing greater poverty: New Zealand still struggles with elevated child
poverty, especially relevant among the ethnic groups of Maori and Pacific peoples that had
worse average income, homelessness, digital exclusion, and chronic school absences
compared to the rest of the country. Meanwhile, over half of households on social housing
waiting lists are Maori. Elevated real estate prices further highlight the issue of inequality, as
buying a home is becoming increasingly unattainable for low-income households, a segment
which includes a sizeable portion of the Maori population.
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Small consumer market: Positive net migration rates will be the main driver of swift
population growth of 15.2% in New Zealand over 2022-2040, while natural increase will
contribute to a lesser extent. This will surpass total population growth of 2.2% in developed
countries over the forecast period. However, expansion over this timeframe will be slower
than regional neighbour, Australia, and New Zealand’s population will remain much smaller in
comparison at just 5.9 million in 2040. Although high incomes and a growing populace will
somewhat compensate for the size of the consumer market, its small base will detract from
its appeal for consumer-facing businesses.
Ageing population: The ageing trend will accelerate in 2022-2040, as birth rates fall and
longevity climbs. Those aged 65 will surge by 59.3% over the forecast period, as younger
groups rise at a slower pace or even decline in the case of those aged 0-14, resulting in a
transformation of consumer trends that will cause lifestyles and spending patterns to adapt.
New Zealand’s old-age dependency ratio is set to hike and reach 36.1% in 2040, up from
24.2% in 2021, as the proportion of the working-age population drops, which will induce
further pressure on state resources, such as pensions and healthcare for the elderly.
Chart 4 Social Environment Dynamics in New Zealand

Source: Eurom onitor International from United Nations (UN)/Eurostat/O ECD/W orld Bank /International Diabetes
Federation/national statistics
Note: Social classes present data referring to the num ber of individuals with a gross incom e A - over 200%, B -
between 150% and 200%, C - between 100% and 150%, D - between 50.0% and 100%, E - less than 50.0% of
an average gross incom e of all individuals aged 15 .

TECHNOLOGICAL ENVIRONMENT
Opportunities
Near-universal internet use by 2026: New Zealand already enjoys high internet penetration
rates, with the percentage of the population using the internet equating to 94.7% in 2021.
The pandemic and associated lockdowns prompted the accelerated expansion and
development of the e-commerce channel, as companies looked for new ways of reaching their
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customers during a time of unparalleled restrictions. Consequently, as consumers have
embraced online shopping during the pandemic, the trend is likely to have taken a foothold
with internet penetration set to rise to 97.4% by 2026, allowing greater implementation of e-
commerce strategies in the country.
Forecast rise in mobile subscriptions: By 2026, there will be 7.2 million mobile telephone
subscribers in New Zealand, continuing the trend towards greater adoption of smartphones to
facilitate daily living. Given that this will equate to more than one mobile subscription per
capita, this also points to the increasing use of mobile devices for work purposes, leading to
multiple ownership of mobile phones and data plans per person. This will create solid
opportunities for the expansion of m-commerce in the country, particularly as social media
usage is increasingly consumed through the use of smartphones. Companies that are able to
create commercial strategies targeting social media can expect to benefit from the rising
trend in mobile subscriptions, as they will be able to monetise social media usage amongst the
population.
New plan to boost ICT development: In February 2022, the New Zealand government
outlined the Industry Transformation Plan (ITP) for the information and communications
technology (ICT) sector, launching a consultation process for the initiative. Central to the
plan will be increasing the talent pool to boost ICT development, given that it has become
such a crucial economic driver. Greater inclusion of the Maori community in ICT is also a
proposal under the plan. Software services and interactive media are sub-sectors of ICT that
will be in focus.

Challenges
Downward trend likely in fixed line network: As an increasing number of people adopt mobile
technology, the need for fixed telephone lines will fall. The stagnant movement in the number
of fixed telephone lines in use over 2013-2021 could turn into a decline in the medium term,
as mobile telephony overtakes the fixed line network for voice calls. Additionally, the
increasing availability of 4G and 5G networks will also result in lower investment in the fixed
line network. By 2026, 99.1% of the population will have access to a 4G/5G network. Further
evidence of the move away from the traditional fixed line network for voice calls is the
announcement in March 2022 that Chorus, the country’s wholesale fixed line provider, has
commenced the decommissioning of copper cabinets in mid-March in favour of concentrating
on the rollout of the fibre-optic network. Trials were conducted in 2021, which demonstrated
that less than 1.0% of Chorus’ copper customers were using the network, according to trade
sources. Migration to a fibre-optic network will, however, ensure the continued availability of
a fixed line network in some, albeit limited, form through improved technology.
Innovation capacity below peers: In 2021, research and development (R&D) expenditure
equated to 1.4% of GDP in New Zealand. This figure is below both Australia’s R&D intensity of
1.8% and the developed countries average of 2.5% that year. Consequently, innovation
capacity in New Zealand looks to be lower than its peers, which could constrain its
competitiveness in the medium term. The lack of links between research and business is also
impacting productivity growth. In 2021, labour productivity stood at USD82,130 per person
employed at constant prices, as compared to the developed countries average of
USD103,420.

Chart 5 Technological Environment Dynamics in New Zealand

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Source: Eurom onitor International from International Telecom m unications Union
(ITU)/Eurostat/O ECD/UNESCO /W orld Econom ic Forum (W EF)/national statistics

Statistical Summary
2015 2016 2017 2018 2019 2020
Inflation (% change) 0.3 0.6 1.9 1.6 1.6 1.7
Exchange rate (per 1.43 1.44 1.41 1.45 1.52 1.54
US$)
Lending rate 5.8 5.0 4.8 4.6 4.4 4.5
GDP (% real growth) 4.5 3.7 4.4 4.0 2.7 -0.3
GDP (national currency 255,453.0 271,321.0 290,851.0 306,324.0 324,013.0 327,448.0
millions)
GDP (US$ millions) 178,146.5 188,877.8 206,661.2 211,942.0 213,465.8 212,265.6
Birth rate (per '000) 13.2 12.6 12.4 11.8 11.9 11.4
Death rate (per '000) 6.9 6.6 6.9 6.8 6.9 6.4
No. of households 1,599.7 1,635.5 1,673.2 1,706.9 1,737.3 1,774.2
('000)
Total exports (US$ 34,349.0 33,742.7 38,064.6 39,675.9 39,510.3 38,873.1
millions)
Total imports (US$ 36,520.8 36,056.4 40,110.1 43,779.7 42,346.1 37,064.4
millions)
Urban population 3,932.2 4,030.7 4,121.6 4,204.5 4,279.0 4,369.1
('000)
Urban population (%) 86.2 86.4 86.4 86.5 86.6 86.7
Population aged 0-14 20.0 19.7 19.5 19.4 19.2 19.1
(%)
Population aged 15-64 65.5 65.7 65.7 65.7 65.6 65.5
(%)
Population aged 65 14.4 14.6 14.8 14.9 15.1 15.4
(%)
Male population (%) 49.2 49.3 49.4 49.5 49.6 49.6
Female population (%) 50.8 50.7 50.6 50.5 50.4 50.4
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2015 2016 2017 2018 2019 2020
Life expectancy male 79.7 79.9 80.0 80.2 80.0 80.3
(years)
Life expectancy female 83.3 83.4 83.4 83.6 83.5 83.9
(years)
Infant mortality 4.2 3.6 3.8 3.8 4.3 3.6
(deaths per '000 live
births)
Adult literacy (%) 99.9 99.9 99.9 99.9 99.9 99.9

Imports and Exports

2021 Share 2021 Share
Major export destinations (%) Major import sources (%)
Exports (fob) to Asia Pacific 58.6 Imports (cif) from Asia Pacific 51.3
Exports (fob) to Australasia 12.5 Imports (cif) from Europe 21.4
Exports (fob) to North America 11.7 Imports (cif) from Australasia 11.2
Exports (fob) to Europe 9.4 Imports (cif) from North America 9.4
Exports (fob) to Africa and the 5.3 Imports (cif) from Africa and the 4.8
Middle East Middle East
Exports (fob) to Latin America 2.0 Imports (cif) from Latin America 1.9

© Euromonitor International 2022

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