Global trends, local impacts
There are many global trends that could affect New Zealand’s future productivity performance. Below we outline four trends and their potential impacts on productivity that could be considered in the Briefing.
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These trends broadly align with those identified by the former New Zealand Productivity Commission (2024).[1] We are seeking feedback on whether these are the right trends to consider and if there are other trends we should explore.
Geopolitical change
We are seeing three ‘Big Shifts’ internationally that could fundamentally alter how New Zealand sees and shapes its place in the world:[2]
- A shift from ‘rules to power’: a period in which rules are more contested and relative power between states assumes a greater role in shaping international affairs.
- A shift from ‘economics to security’: with economic relationships being reassessed in a more securitised and less stable world.
- A shift from ‘efficiency to resilience’: where building greater resilience and addressing social and sustainability issues become more prominent drivers of economic behaviour.
A world with increased risk of conflict, geoeconomic fragmentation in response to geopolitical risks and rivalries, and the reconfiguration of supply chains and international connections, will likely weigh on New Zealand’s economic growth in the long term.
New Zealand is one of the more exposed small advanced economies to global supply chain disruptions because of its geographic isolation, weak international connectivity, and lack of a domestic production base.[3]The product and market concentration of our trade profile could further increase vulnerability.
Technology change
The pace and scale of global technological developments are expected to increase in the period ahead, offering the potential to address problems including climate change and low productivity growth, but also creating new challenges and disruptions for communities, businesses, and governments. The global race for technological advantage closely intersects with growing geopolitical risks and rivalries.
Artificial Intelligence (AI) is an example of a technology that may have considerable effects on productivity in the coming years. Technological change tends to increase labour productivity over the long run. Yet in recent times, technological breakthroughs in information technology have not always been accompanied by the expected productivity growth.
In New Zealand, while technology has lifted productivity for some firms, its benefits have not been fully captured or shared broadly. Challenges we face that may negatively impact on our pace to adopt emerging technologies (relative to other advanced economies) include low absorptive capacity, limited international connectivity, and under-investment in R&D, both at a business and a government level.
Climate change
The physical effects from climate change–such as higher temperatures, sea level rise and extreme weather events–are already impacting economic and productivity performance. Impacts are expected to become more pronounced over time. Tipping points–such as ocean current convections–if reached, could have large and cascading effects. Physical climate impacts may create some opportunities to improve productivity, such as warmer temperatures improving yields of specific crops, but the overall trend is negative. The burdens and benefits of climate change, mitigation and adaptation will not be distributed evenly between or within countries, likely contributing to global instability. Resource productivity, or the efficiency with which physical resources/materials are used, and recovery and reuse of resources, are becoming more important considerations for governments and businesses.
New Zealand’s changing climate will likely negatively impact productivity due to disruptions to capital, supply chains and institutional stability, and reductions in labour productivity due to higher temperatures. The sectors most exposed to a changing climate are fisheries, agriculture, forestry, tourism, supply chains and energy.
New Zealand’s transition to a low emissions economy could have either a positive or negative impact on future productivity performance, depending on how it is managed.[4] Studies indicate that a more ‘orderly’ transition may lower productivity in some sectors in the short term, but is likely to have benefits to productivity in the medium to long term.[5]
Demographic change
The global population is ageing. In 2018, the number of older people (aged 65 years and above) exceeded the number of young children (aged 5 years and below) for the first time. By 2050, the United Nations expects the number of older people to exceed that of adolescents and youth (aged 15 to 24 years). This trend is particularly pronounced in some advanced economies in Europe and East Asia. In contrast, some developing countries in South Asia, Latin America, the Middle East and North Africa will see larger working-age populations.
Consistent with the global trend in advanced economies, New Zealand’s population is also ageing with the median age likely to reach 40 years in the early 2030s, up from 25.6 years in 1970.[6] In addition, New Zealand faces specific demographic changes as its population is becoming more ethnically diverse. The Asian population is the fastest growing population group and is projected to be the largest non-New Zealand European ethnic group by the late 2020s.[7]
It is unclear how these global and New Zealand-specific demographic trends will affect our productivity performance. For example, the Treasury found that while ageing is expected to have a small negative impact on individual-level productivity due to a deterioration in cognitive abilities, it is difficult to make an overall assessment on the impact of ageing on labour productivity.[8]
Question 3
Which are the most important global trends that the Briefing should explore?
Footnotes
[1] New Zealand Productivity Commission (2024):
Looking to the future: An enduring policy and research agenda to address Aotearoa New Zealand’s productivity challenges(external link) — The Treasury
This report also considered social cohesion and public health as global trends that could impact on New Zealand’s future productivity performance.
[2] Navigating a shifting world: Te whakatere i tētahi ao hurihuri(external link) — Ministry of Foreign Affairs and Trade (2023)
[3]Skilling, D. (2022):
Supply chains to the last bus stop on the planet: An international perspective on strengthening New Zealand’s supply chain resilience [PDF 7.3MB](external link) Wellington: Landfall Strategy Group.
[4] New Zealand Productivity Commission (2018):
Low-emissions Economy [PDF 8.6MB](external link) — The Treasury
[5] Bijnens, G., et al (2024):(external link)
Occasional Paper Series: The impact of climate change and policies on productivity(external link) — European Central Bank.
[6] National population projections: 2022(base)–2073(external link) — StatsNZ
[7] National ethnic population projections: 2018(base)–2043)(external link) — StatsNZ
[8] Van Rensburg, M., et al. (2021):(external link)