New Zealand’s Services Sector: The Engine of a Modern Economy

Overview

The services sector is the largest and most influential part of New Zealand’s economy. It generates about 70 percent of the nation’s GDP and employs roughly three-quarters of the workforce. 

The sector underpins every other area of the economy, providing finance, logistics, digital systems, education, and professional support that allow production, trade, and government activity to function efficiently.

Current Position

In 2025, the services sector remains stable but shows mixed results. Growth continues in technology, finance, and professional services, while retail, hospitality, and transport have softened. 

The BusinessNZ Performance of Services Index has remained below 50 for several months, indicating flat activity. Unemployment reached 5.2 percent in mid-2025 — higher than recent years but still within a moderate range.

Key Drivers

• Digital transformation: New Zealand firms are adopting automation, cloud services, and AI, improving efficiency and enabling service exports.

• Migration and tourism recovery: Increased arrivals and the revival of international travel are boosting demand for accommodation, transport, and education.

• Government investment: Spending on health, education, and infrastructure continues to support professional and community services.

• Knowledge and innovation: Growth in software, data, design, and research reflects the shift toward a knowledge-based economy built on intangible assets.

Challenges

• Low productivity growth: Service productivity remains below that of international peers, due to smaller firm size, limited capital investment, and uneven management capability.

• Cost pressures: Rising wages, rent, and compliance costs continue to erode margins, particularly for smaller businesses.

• Skills shortages: The sector faces ongoing shortages in IT, healthcare, and technical professions, despite higher overall unemployment.

• Uncertain demand: Global economic softness and cautious consumer spending are weighing on business confidence.

Opportunities

• High-value exports: Sectors such as information technology, education, and professional consulting can expand internationally through digital delivery.

• Productivity gains: Improved processes, data use, and automation can lift output and margins without adding cost.

• Sustainable growth: Green finance, environmental services, and low-carbon logistics align with both global trends and New Zealand’s national brand.

• Regional expansion: Better digital connectivity allows skilled work and service delivery to grow outside major cities.

Future Outlook

The sector’s short-term outlook is steady rather than strong. Demand remains uneven, but underlying structural trends point to moderate expansion. 

Over the next few years, success will depend on faster productivity growth, investment in technology, and the development of export-ready service models. As digital and knowledge-based industries expand, services will continue to drive New Zealand’s long-term prosperity.