Economy of New Zealand in the context of "Free-market economy"

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⭐ Core Definition: Economy of New Zealand

New Zealand has a highly developed free-market economy. As of 2025, New Zealand's nominal GDP was US$248 billion. In the 2025 IMF rankings New Zealand was the 52nd-largest national economy in the world when measured by nominal gross domestic product (GDP) and the 63rd-largest in the world when measured by purchasing power parity (PPP). New Zealand has one of the most globalised economies and depends greatly on international trade, mainly with China, Australia, the European Union, the United Kingdom, the United States, Japan and Korea. New Zealand's 1983 Closer Economic Relations agreement with Australia means that the economy aligns closely with that of Australia. Among OECD nations, New Zealand has a highly efficient and strong social security system; social expenditure stood at roughly 19.4% of GDP.

New Zealand's diverse economy is made up of various types of informal and formal organisations, divided between the public and private sectors. It has a sizeable service sector, accounting for 73% of all GDP activity as of 2024. As a large island nation New Zealand has abundant natural resources and mineral wealth. Prominent manufacturing industries include aluminium production, food processing, metal fabrication, wood and paper products. Goods-producing industries accounted for 20% of GDP as of 2024. The primary sector continues to dominate New Zealand's exports, despite accounting for only 7% of GDP as of 2024. The information technology sector is growing rapidly.

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Economy of New Zealand in the context of Inflation targeting

In macroeconomics, inflation targeting is a monetary policy where a central bank follows an explicit target for the inflation rate for the medium-term and announces this inflation target to the public. The assumption is that the best that monetary policy can do to support long-term growth of the economy is to maintain price stability, and price stability is achieved by controlling inflation. The central bank uses short-term interest rates as its main monetary instrument.

An inflation-targeting central bank will raise or lower interest rates based on above-target or below-target inflation, respectively. The conventional wisdom is that raising interest rates usually cools the economy to rein in inflation; lowering interest rates usually accelerates the economy, thereby boosting inflation. The first three countries to implement fully-fledged inflation targeting were New Zealand, Canada and the United Kingdom in the early 1990s, although Germany had adopted many elements of inflation targeting earlier. As of 2024, inflation targeting has been adopted by 45 individual countries and the Euro Area as their monetary policy framework.

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Developed country → Free-market economy → List of countries by GDP (nominal) → Nominal gross domestic product → List of countries by GDP (PPP) → Purchasing power parity → Globalised → List of the largest trading partners of New Zealand → China → Australia → European Union → United Kingdom → United States → Japan → South Korea → Closer Economic Relations → Economy of Australia → OECD → Welfare in New Zealand → Welfare state → Public sector → Private sector → Service sector → Information technology industry in New Zealand →