Articles

Energy is fundamental to economic growth and living standards. Here we look at how well New Zealand’s energy sector has been able to balance security, equity and sustainability, and the challenges it will face balancing them in the future.

Despite clear trade concerns globally, New Zealand’s primary sector is in a strong position, and high food commodity prices reinforce this strength. But Fonterra’s opening farmgate milk price forecast for the 2025/26 season provides a major signal of caution, highlighting the heightened volatility in global economic conditions, dairy supply dynamics, and trade tensions.

The primary sector remains an important driver of economic activity in 2025, with generally rising export values across a number of areas. Despite clear risks to global growth, exporters have substantial momentum behind them at current.

New Zealand’s provincial economies contribute greatly to the overall economy, providing dairy, meat, and horticultural products to the nation and overseas export markets.

At the peak in mid-2022, on-farm costs rose 15%pa, more than double the peak consumer inflation rate. But inflation has now clearly turned a corner and is moderating, a trend also seen in on-farm costs, with the annual gain to March 2024 just 1.2%pa – the slowest rise since the start of 2021.

The outlook for the primary sector remains worse for the year ahead, driven by several factors including higher costs, lower global demand, and weather influences.

New Zealand’s economy looks to have expanded further in the September 2023 quarter, although momentum has slowed as various economic pressures hit. Continued jobs and population growth have supported growth, but high inflation and higher interest rates have moderated the strength seen in the economy. Rising pressures on the primary sector are also beginning to hit provincial economies.

There are increasing questions being raised in the provinces about how hard the hit to the primary sector, and by extension the broader New Zealand economy, might be from lower export prices. That mounting risk represents a shift in focus from higher interest rates, which have dominated the discussion about factors weighing on the economy over the last two years, as the official cash rate has been ramped up from 0.25% to 5.5% and mortgage rates have hit a 14-year high. Higher fuel prices are adding to economic challenges, costing families more and raising the cost of moving goods around.

Economic momentum continues to hold up better than expected across New Zealand, with rapid jobs growth and population growth counterbalancing inflation and interest rate challenges faced by households. Some parts of the country continue to experience solid growth, but others remain hampered by the ongoing effects of wild weather over the first half of 2023.

In this article we look at how a price on agricultural emissions that is lower than that paid elsewhere in the economy imposes a cost on New Zealand citizens that could reach an average of $1,000 per person by 2030.