Unlocking New Zealand’s $60 Billion Productivity Potential
New Zealand could unlock an additional $60 billion in annual incomes by 2050 if the country takes bold steps to tackle its long-standing productivity challenge, according to ASB’s latest economic report.
That potential uplift reflects the cumulative benefits of working smarter, investing in innovation and productive capital, and better utilising skills and resources — setting the stage for stronger, more resilient businesses and higher living standards nationwide.
Working smarter, not just harder
Productivity lies at the heart of economic progress. It measures how effectively an economy turns labour and capital into goods and services — the key driver of wage growth, competitiveness, and overall prosperity.
Despite New Zealand’s reputation for ingenuity, output per worker remains 25–30% below the OECD average, a gap that has barely narrowed over the past decade and may have even widened since the COVID-19 pandemic. This underperformance has slowed wage growth and weakened business resilience.
ASB Senior Economist Mark Smith says the time for decisive action is now. “Productivity is the engine of prosperity. New Zealand is coming out of an economic slowdown and moving into the upswing. This is the time for firms and households to take charge and invest to improve productivity. A step change in productivity will boost incomes, bolster living standards, and lengthen the duration of the economic upswing.”
What’s holding us back?
ASB’s report points to several structural barriers. Over time, investment and employment have gravitated toward non-tradeable sectors such as construction, retail, and government services — areas less exposed to global competition and, therefore, less driven to innovate.
The report also found that productivity has dropped sharply in sectors most sensitive to interest rates, coinciding with a period of high inflation and tighter monetary policy. The biggest productivity declines post-pandemic occurred in sectors that were both non-tradable and interest-rate sensitive.
Another constraint is New Zealand’s relatively low export intensity. While many firms perform exceptionally well internationally, overall export activity lags behind other small advanced
economies. The country’s limited global reach restricts opportunities to harness international demand and cutting-edge technology.
The report identifies three key levers for productivity growth: labour input, capital investment and infrastructure quality, and how effectively these are combined through technology, skills, and management practices. Historically, New Zealand has leaned too heavily on expanding labour quantity rather than improving labour quality or deepening capital investment, a strategy that has capped long-term productivity gains.
The risks of inaction
ASB economists caution that failing to act will have compounding effects over generations. Without reform, New Zealand risks slipping further behind its peers, resulting in slower wage growth, reduced competitiveness, and fewer opportunities for households and businesses alike.
Seizing opportunities
Despite the challenges, ASB’s economists see clear pathways to lift productivity. The adoption of artificial intelligence offers particularly strong potential. ASB estimates that effective AI integration could add up to $20 billion to the GDP annually by 2040, with wide-ranging benefits, including improved patient care and enhanced efficiency across manufacturing and services.
Further gains could be achieved through increased capital investment, innovation, and the adoption of new technologies. With interest rates easing and the Government’s Investment Boost package underway, the current economic cycle offers fertile ground for productive investment.
Modernising infrastructure, improving public sector efficiency, and strengthening policy around education, competition, innovation, and technology adoption will be critical for ensuring a future-ready economy.
As Mark Smith notes: “Even small improvements make a big difference over time. By 2040, our economy could be $30 billion bigger, and by 2050, NZ’s annual GDP could be $60 billion larger. That’s a future worth working for.”
ASB Economist Wesley Tanuvasa adds: “Aotearoa is at a pivotal moment. Our feet are being put to the fire regarding productivity, and we have an opportunity to pursue growth in a way that is productive, resilient, and benefits the country as a whole.”
Backing Kiwi businesses through collaboration
ASB is putting its own weight behind the productivity push. Over the past five years, it has grown business lending by $4.5 billion, more than any other New Zealand bank.
In August, ASB partnered with the New Zealand Product Accelerator to connect students in AI, data science, and business analytics with ASB business clients, helping firms integrate emerging technologies and accelerate growth.
The bank also worked with the Employers and Manufacturers Association and productivity consultancy LMAC to deliver 21 workshops for manufacturers over the past year. Focused on big data, digitisation, and advanced technology, these sessions drew more than 200 businesses, with 40 developing targeted investment roadmaps for productivity-boosting initiatives.
The message from ASB’s economists is clear: if New Zealand commits to investing in innovation, technology, and skills today, it can secure not just higher incomes but a more dynamic and resilient economy for decades to come.
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