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New Zealand Politics Show Signs of Growing Instability Amid Global Economic Turbulence

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  Published in Politics and Government on Sunday, December 7th 2025 at 22:41 GMT by The New Zealand Herald

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New Zealand’s Political Landscape Growing More Volatile, International Economists Say

A recent analysis of New Zealand’s political trajectory has prompted a wave of concern among international economists. In a feature published by the New Zealand Herald, the piece argues that the country’s political system is increasingly unstable, a trend that parallels growing volatility in the global economy. Drawing on a mix of academic research, statistical evidence and expert commentary, the article paints a sobering picture of a nation whose once‑stable coalition politics are now in flux.

The Core Argument

The article’s central thesis is that New Zealand’s politics have become “more unstable” in the last decade, a change that mirrors the broader international trend of heightened economic turbulence. The analysis is anchored in a study by Dr. Lydia McKay, a senior research fellow at the University of Auckland’s Institute of Economic Research, who has spent the last five years mapping the link between macro‑economic indicators and political volatility.

McKay’s research shows that key indicators—such as the volatility of the New Zealand Dollar, fluctuations in the International Monetary Fund’s (IMF) growth forecast for the Asia‑Pacific region, and the widening gap between urban and rural incomes—correlate strongly with sudden shifts in policy direction and cabinet reshuffles. According to the study, the probability of a major policy reversal in New Zealand increased from 12 % in 2010 to 29 % in 2023, a jump that economists say is statistically significant.

Linking Global Shocks to Domestic Politics

The article argues that global economic shocks have amplified New Zealand’s internal tensions. The 2020‑2021 COVID‑19 pandemic, the 2022‑2023 inflation surge, and the 2023 war‑related commodity price spikes all had direct repercussions for New Zealand’s economy. In particular, the article points to the country’s heavy reliance on agriculture exports—a sector that has been highly sensitive to international price swings.

An IMF analyst quoted in the piece noted that “when global commodity prices plummet, the New Zealand economy suffers a ripple effect that strains the political establishment.” In response, the article cites a recent IMF working paper that found a 15 % decline in export earnings in 2023 was associated with a 5 % increase in the likelihood of a leadership change within the ruling party.

The Role of Coalition Politics

A significant portion of the article focuses on how New Zealand’s coalition government model, long touted as a stabilising force, may now be a source of fragility. Historically, the National and Labour parties have alternated in power, often forming coalitions with smaller parties like the Green Party or ACT New Zealand. The article suggests that the increasing frequency of coalition talks—particularly after the 2023 general election—has led to a “policy gridlock” that hampers swift decision‑making.

Political scientist Professor Ethan Ritchie of Victoria University of Wellington, who was interviewed for the feature, warned that “the coalition structure that once provided stability is now a breeding ground for short‑termism.” He cited the 2023 coalition talks as an example, where a 12‑month negotiation period delayed the implementation of crucial fiscal stimulus measures.

Impact on Public Trust and Democratic Norms

Another key theme is the erosion of public trust in political institutions. The article reports that New Zealand’s “political stability index,” a composite measure of government longevity, public approval of political leaders, and the rate of policy reversals, fell from 78.5 % in 2015 to 65.3 % in 2023. International survey data from the World Values Survey are used to show that 48 % of New Zealand respondents in 2023 express doubts about their government’s long‑term effectiveness—an increase of 12 % from 2015.

The article argues that this loss of confidence is linked to the perceived unpredictability of policy outcomes. For instance, the abrupt cancellation of the “Clean Energy Future” program in late 2022—originally announced by the National Party but scrapped by a coalition partner—was cited as a prime example of political instability. The piece notes that such reversals not only undermine policy efficacy but also erode faith in democratic processes.

The Economic Cost of Instability

The piece also ventures into the economic consequences of a volatile political climate. Drawing on a study by the Reserve Bank of New Zealand (RBNZ), it highlights a 4 % drop in foreign direct investment (FDI) inflows between 2019 and 2023. The RBNZ report attributes this decline to “uncertain policy environments and perceived risks of sudden regulatory shifts.” Moreover, the article cites a 3.2 % increase in the cost of borrowing for businesses, linking it to higher perceived risk premiums in international capital markets.

The article concludes that the economic fallout is not limited to capital markets. The labour market, too, shows signs of strain. According to data from the Ministry of Business, Innovation and Employment (MBIE), the unemployment rate rose from 4.1 % in 2019 to 5.6 % in 2023, a jump largely driven by industries that rely on predictable export markets—most notably dairy and horticulture.

International Perspectives

The piece also offers a global viewpoint. A short commentary from the OECD’s Asia‑Pacific Department frames New Zealand’s experience as part of a larger trend affecting small, open economies. The OECD noted that “political instability can amplify the effects of global supply‑chain shocks and commodity price volatility, creating a vicious cycle that is difficult to break.”

The article ends with a series of recommendations aimed at stabilising New Zealand’s political environment:

1. Strengthen Institutional Resilience: The article suggests reforms to coalition agreements, ensuring clearer policy commitments and timelines.
2. Improve Policy Transparency: A call for better communication of policy intent and expected outcomes to curb public confusion and mistrust.
3. Diversify the Economy: Encouraging investment in non‑commodity sectors to reduce exposure to global price swings.
4. Enhance Data Analytics: Utilizing real‑time data to monitor political and economic indicators and preempt potential instability.

Final Thoughts

In sum, the New Zealand Herald feature synthesises a growing body of research that indicates a worrying trend: New Zealand’s political system is becoming more unpredictable, largely due to the twin pressures of global economic volatility and domestic policy fragmentation. While the article’s data points are compelling, the piece also underscores the importance of policy continuity and institutional reforms in preserving democratic stability. For New Zealand, the challenge will be to translate these findings into concrete action that can restore confidence among voters, investors, and international partners alike.