OECD Long-term Economic Outlook 2025: How Can Oceania Reshape Its Growth Path Amid Global Changes?

OECD Long-Term Economic Outlook 2025: How Can Oceania Reshape Its Growth Path amid Global Shifts?

The value of economic forecasts lies not in precise prediction, but in providing policymakers with a consensus framework for long-term constraints. When the Organisation for Economic Co-operation and Development (OECD) released its latest round of global long-term economic scenarios in 2025, governments, investors, and development agencies across Oceania gained an opportunity to recalibrate their strategic coordinates.

This update is no simple numerical extrapolation. It integrates demographic change, productivity growth trends, capital accumulation paths, and the costs of the energy transition, seeking to answer a fundamental question: how fast can economies still grow in the near future? For Oceania, the answer is far more complex than imagined. As developed economies, Australia and New Zealand face multiple challenges: breaking through productivity bottlenecks, managing the green transition, and adapting to the reconfiguration of Asian demand. At the same time, more than a dozen Pacific island nations must explore more resilient development paths in a world of increasingly severe climate risks.

Background: The Multidimensional Framework of OECD Long-Term Scenarios

OECD long-term economic scenarios typically cover growth paths over the next 30 to 40 years, with core variables including labor supply, capital stock, total factor productivity, and investment related to the energy transition. Building on previous editions, the 2025 update further incorporates the scarring effects of the COVID-19 pandemic, the risks of geoeconomic fragmentation, and the impact of net-zero policy commitments.

For the economies of Oceania, these scenarios hold particular reference value. As part of the Asia-Pacific region, Oceania's growth is increasingly intertwined with Asian value chains, resource demand, and climate finance. The OECD's research in these areas—such as analysis of global trade, carbon pricing, and infrastructure investment—directly affects the priorities of regional economic policy. Notably, OECD long-term scenarios focus not only on GDP growth rates, but also emphasize the sustainability and inclusiveness of growth, which is precisely the core dimension of the long-term development logic of Pacific island nations.

In-Depth Analysis: Growth Challenges for Three Types of Economies

Australia: Productivity Challenges after the Resource Dividend

Over the past two decades, the Australian economy has benefited from resource demand driven by Asian industrialization, with iron ore, coal, and natural gas exports supporting its high per capita income. However, OECD long-term scenarios generally point out that resource-based economies often face downward pressure on productivity growth after extractive investment peaks. Australia's labor force growth has already slowed with population aging, while the space for capital deepening is constrained by global interest rate levels.

The more critical variable is the energy transition. Australia is both a major global exporter of liquefied natural gas and endowed with world-class solar and wind resources. In long-term scenarios, the global low-carbon transition will reshape the structure of commodity trade: traditional fossil fuel exports may face shrinking demand in the medium to long term, while critical minerals—lithium, cobalt, rare earths—offer Australia new export opportunities. The OECD's assumptions about carbon reduction pathways will directly affect the reliability of these projections.

Australia's long-term competitiveness also depends on the extent of its integration into Asian value chains. As the economic center of gravity in the Indo-Pacific region continues to shift eastward, Australia's services trade (education, finance, tourism) and agricultural exports are expected to maintain growth. But the OECD also warns that global trade fragmentation could push up transportation and compliance costs, which is particularly disadvantageous for Australia given its relatively isolated geographical location.Meanwhile, island states also possess unique long-term assets: vast exclusive economic zones, biodiversity, and marine energy potential. Fisheries and deep-sea mineral development could become new sources of revenue, but poor management can easily trigger ecological collapse. The blue economy framework advocated by the OECD offers island states a governance approach that seeks balance between protection and development. The accessibility of development finance, the efficiency of climate fund allocation, and prudent planning of infrastructure investment will determine whether island states can shift from passive adaptation to proactive development.

Regional Impacts: Ripple Effects Across Borders

The OECD's long-term scenarios reveal not the future of isolated countries, but a tightly interwoven interdependence within the region. Macroeconomic fluctuations in Australia and New Zealand are transmitted to Pacific island states through remittances, tourism, and aid channels. Data show that in countries such as Fiji and Samoa, overseas remittances typically account for more than 10% of GDP, with most coming from diasporas in Australia and New Zealand. If potential growth in Australia and New Zealand declines due to productivity stagnation, island states' foreign exchange earnings will also come under pressure.

Conversely, the climate resilience of island states concerns the strategic stability of the entire region. Australia and New Zealand have joined initiatives related to "Pacific climate security" and have committed to providing climate finance and technical support to island states. In the long run, such cooperation may give rise to a "climate community": Australia and New Zealand exchange capital and technology for strategic depth and access to island states' marine resources. Assumptions about carbon prices and emission reduction policies in the OECD scenarios will affect the cost and scale of such cooperation.

The restructuring of trade corridors also has regional significance. Shipping connections between Australia's Northern Territory, Queensland ports, and Papua New Guinea and Timor-Leste are seen as a key link in the future Asia-Pacific supply chain. The OECD's projections for global trade growth will determine the returns on investment in these corridors. If global trade protectionism intensifies and the share of intra-regional trade rises, Oceania's economies will have greater incentive to compensate for insufficient external demand through "Pacific integration".

Long-Term Trends: Key Variables for 3, 5, and 10 Years

In the next three years (to 2028), Oceania's economies will be mainly constrained by the global inflation cycle and the direction of monetary policy. Central bank policies in Australia and New Zealand will set the pace of household consumption and investment, while island states will need to cope with food and energy price volatility. The interest rate normalization path in the OECD scenarios will affect the fiscal sustainability of each country.

In the next five years (to 2030), structural factors will begin to dominate. Global carbon border adjustment mechanisms may take effect, having a substantial impact on Australia's carbon-intensive exports and island states' agricultural exports. At the same time, whether Oceania's economies can seize opportunities in critical minerals and renewable energy equipment manufacturing will largely shape their industrial upgrading trajectories. Australia's "Future Made" policy and New Zealand's green hydrogen plan have already shown intentions to shift toward higher value-added segments.Over the next decade (to 2035), the combined effects of demographic and technological change will become fully apparent. The working-age population share in Australia and New Zealand will continue to decline, requiring automation and immigration policies as a buffer. Pacific Island countries, meanwhile, face the largest wave of youth population in history; if sufficient employment is not provided, pressure for regional labor mobility will rise. Key assumptions in the OECD long-term scenarios—such as the extent to which AI boosts productivity and biotechnology transforms agriculture—will have uneven impacts across Oceania's industries.

Conclusion: The Non-Economic Equation of Long-Term Growth

The OECD long-term economic scenarios remind us that Oceania's future is not determined by resource endowments or historical inertia. What truly shapes long-term growth rates are policy choices, institutional quality, and regional cooperation capacity. Australia needs to break the "resource curse" and convert resource revenues into innovation capital; New Zealand needs to find a dynamic balance between agricultural protection and industrial upgrading; Pacific Island countries need to build socio-economic resilience systems capable of withstanding climate shocks.

In the midst of global transformation, Oceania cannot rely solely on external demand cycles. By deepening regional cooperation, investing in human capital and infrastructure, and actively participating in global rule-making, Oceania's economies can turn challenges into new drivers of long-term growth. The OECD's outlook does not provide simple answers, but it offers a framework for thinking—and the framework itself is the foundation for action.

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Key Points:

• The OECD's 2025 long-term scenario shows that Australia faces pressure to raise productivity as resource dividends fade, with the energy transition and restructuring of Asian value chains as key variables.
• New Zealand's long-term growth will be shaped by both climate policy and immigration policy, and the green premium could become a new competitive advantage.
• Pacific Island countries' growth prospects are highly dependent on climate adaptation capacity and the development of the blue economy, with the accessibility of development finance determining their resilience.
• The region is tightly interconnected through remittances, trade, and aid, and an economic slowdown in Australia and New Zealand would directly impact the foreign exchange earnings of island countries.
• Over the next decade, demographic shifts and technological change will reshape Oceania's labor markets, and regional cooperation is key to addressing shared challenges.