New Zealand's economy has traditionally been based on pastoral farming. The last decades, however, have seen the beginnings of heavy industry, and there has been a large expansion in light industries such as plastics, textiles, and footwear, mostly to supply the home market. In recent years there has been a trend toward the development of resource-based industries, and the forest industry has greatly expanded. Pulp, log, and paper products are now a major earner of overseas exchange. As of 1995, 10% of the work force was employed in agriculture, hunting, forestry, and fishing; 25% in industry; and 65% in services. In 2001, agricultural production amounted to approximately 8% of GDP, industry 23%, and services 69%.
For financing imports both of raw materials and of a high proportion of manufactured goods, New Zealand has traditionally relied on the receipts from the export of its restricted range of primary products (mainly wool, meat, and dairy products). This dependence on the income from so few commodities makes the economy vulnerable to fluctuations in their world prices, and sharp drops in these prices, as have occurred periodically, inevitably result in the restriction of imports or a substantial trade deficit. Other important industries in 2002 were the manufacture of machinery and transportation equipment, banking and insurance, and eco-tourism.
The economy has been subjected to two major crises in last 30 years: first, in 1968, the loss of the protected market for its agricultural goods when the United Kingdom joined the European Community (now the European Union), and second, inflation and stagnation in the early 1980s in the aftermath of the second international oil shock. The first produced a governmentled program to transform the economy into an independent, more industrialized competitor in the world market, and the second, a neoliberal transformation of the economy combining a strict monetary regime to eliminate inflation, liberalization of the country's trade and investment regimes, and deregulation and privatization of the domestic economy. The liberalization and stabilization program transformed New Zealand from a heavily protected and regulated economy to one of the most market-oriented and open in the world. By 1996, New Zealand was posting annual growth rates in real GDP of 5–6%, surpluses in the government's budget, and a per capita GDP in line with those of the big European economies. Subsequent disruptions, however, resulting in declines in industrial production and per capita income, have raised concerns that the gap is no longer closing. The Asian financial crisis erupting in the second half of 1997 helped lower annual growth to 3.1% in 1997, and, combined with a summer drought, push the economy into recession in the first half of 1998. The economy recovered sufficiently to register a positive 1.9% growth for 1998, and 3.5% in 1999. Despite increased fuel cost that sent inflation to 4% in 2000 (outside the government's target range of 0 to 3%), real GDP growth improved to 4.6%. The global slowdown in early 2001, exacerbated by the effects of the 11 September 2001 terrorist attacks on the United States, had a relatively mild impact on New Zealand's economy, reducing real GDP growth to 2.3%. While inflation moderated to 2.1% the government continued operating in the black with an operating surplus and positive returns from state enterprises, although the budget surplus has been steadily declining from 2.6% of GDP in 1999/98 to 0.8% of GDP in 2000/01. Part of the operating surplus fed the first contribution in 2002 to the New Zealand Superannuation (NZS) Fund established in 2001. The NZS is an investment fund designed to generate money to assure that public pensions are covered for the country's aging population. The current account deficit, a combination of a small merchandise trade surplus and a large deficit on investment income, fell from 7% of GDP to 4.8% of GDP in 2001. Gross public debt fell from 36% of GDP in 1999 to 30% of GDP in 2002, in line with the target set by government planners.