This Survey is published on the responsibility of the Economic and Development Review Committee of the OECD, which is charged with the examination of the economic situation of member countries.

The economy shrank sharply in the second quarter of 2020 but bounced back quickly thanks to effective virus containment, measures to protect jobs and incomes and highly expansionary macroeconomic policies. Confronted with the highly contagious Delta variant and with high vaccination rates, the government shifted from an elimination strategy to minimisation and protection.

The New Zealand economy recovered quickly from the COVID-19 shock thanks to effective virus containment, measures to protect jobs and incomes and highly expansionary macroeconomic policies but is now overheating and house prices have soared. The Reserve Bank has begun to tighten monetary and macroprudential policies with a view to achieving its price and financial stability objectives. Together with policy measures to increase housing supply, this should help moderate housing price inflation. While the fiscal deficit has begun to fall from the highs reached during the first wave of the COVID-19 shock, additional consolidation measures will be needed to put public finances on a sustainable path, including an increase in the pension eligibility age. New Zealand has a solid institutional framework to reduce greenhouse gas emissions but needs to implement additional abatement measures to meet its objectives. The carbon price needs to increase substantially and complementary measures taken that address market failures not corrected by carbon pricing alone.

Effective use of digital technologies enables New Zealanders to participate in society in a more inclusive way, firms to boost productivity and better integrate into the global economy, and the government to offer better services. New Zealand’s digital sector and digital innovation have much room for growth. Diffusion of digital technologies and investment in intangible capital that maximises the potential of these technologies could be enhanced by addressing structural bottlenecks. There are severe shortages of specialised ICT skills owing to COVID-19-related border restrictions and a weak domestic pipeline of these skills that partly results from school students’ poor mathematics achievement. Some regulations have not kept pace with technological change and risk constraining digital innovation while failing to prevent harmful activities. More intensive use of digital tools is also held back by low availability of high-speed Internet connections in rural areas and a lack of financial support for small businesses. Weak coordination between export promotion and innovation support prevents young firms investing in digital innovation from reaping high returns through exporting. New Zealand should rigorously implement its new national digitalisation strategy so that government agencies and social partners can advance digital transformation.