The International Monetary Fund (IMF) said that New Zealand's weak productivity growth poses a significant challenge for the country's long-term economic prospects, and broad-based reforms are needed to tackle the issue, according to the agency's June report.

The low productivity growth partly reflects structural factors, including the country's remote geography and small markets, as well as the relatively large role of the tourism and agriculture sectors.

With slow labor productivity growth, New Zealand's economic expansion has been supported by rapid expansion of the labor force, due to both increased labor force participation and strong inward migration flows. The workforce has not witnessed the same efficiency gains as workforces in advanced economy peers, per the report.

New Zealand's capital intensity, measured as real capital stock per hour worked, has remained low relative to peers, while capital productivity, which estimates how efficiently capital is used to generate output, has declined, despite limited capital deepening.

From 2010 to 2022, labor productivity growth in New Zealand was below the Organisation for Economic Cooperation and Development (OECD) peer average in agriculture, information and communication, and some services sectors. It was in the bottom quartile among OECD peers for financial services, industry, manufacturing, and professional & technical services sectors over the same period.

Business dynamism in New Zealand is weak, with the rate at which young, high-growth firms emerge in New Zealand being relatively limited compared to peers. Over 2008 to 2018, new young, high-growth firms were primarily concentrated in the financial and real estate sectors.

Access to land and infrastructure gaps remain barriers to firm productivity and growth, while a softer approach to competition policy, as well as regulatory barriers, may have reduced competition and affected business dynamism. Strict regulations have historically reduced the role of foreign direct investment in New Zealand's economy.

New Zealand's equity and debt markets are underdeveloped compared to those in other advanced economies.

Deepening of capital markets, more focus on public research, research and development tax incentives, regulatory changes, as well as policies to reduce barriers to land use and foreign direct investments were among the policy reforms suggested by the report.