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

Introduction

The value of economic forecasting 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-Run Economic Scenarios in 2025, governments, investors, and development agencies across Oceania gained an opportunity to recalibrate their strategic coordinates.

This update is not a simple numerical extrapolation. It integrates demographic shifts, productivity growth trends, capital accumulation paths, and energy transition costs, 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 advanced economies, Australia and New Zealand face multiple challenges: breaking through productivity bottlenecks, managing the green transition, and adapting to the restructuring of Asian demand. Meanwhile, more than a dozen Pacific island countries must explore more resilient development paths in a world of intensifying climate risks.

Background: The Multidimensional Framework of OECD Long-Term Scenarios

OECD long-term economic scenarios typically cover growth paths spanning 30 to 40 years into the future, with core variables including labor supply, capital stock, total factor productivity, and investment related to the energy transition. Building on previous versions, 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 Oceania's economies, these scenarios have special reference value. As part of the Asia-Pacific region, Oceania's growth is increasingly intertwined with Asian value chains, resource demand, and climate finance. OECD research in these areas—for example, analyses of global trade, carbon pricing, and infrastructure investment—directly influences 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 are precisely the most central dimensions of the long-term development logic for Pacific island countries.

In-Depth Analysis: The Growth Puzzle of Three Types of Economies

Australia: The Productivity Challenge After the Resource Dividend

Over the past two decades, Australia's economy has benefited from resource demand driven by Asian industrialization, with iron ore, coal, and natural gas exports underpinning high per capita income. However, OECD long-term scenarios generally point out that resource-based economies often face pressure from slowing productivity growth after the peak of extractive industry investment. Australia's labor force growth has already gradually decelerated with population aging, while the scope for capital deepening is also 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 a long-term contraction in demand, while critical minerals—lithium, cobalt, rare earths—offer Australia new export opportunities. OECD assumptions about carbon reduction pathways will directly affect the reliability of these projections.Australia's long-term competitiveness also depends on the degree of its integration into Asian value chains. As the Indo-Pacific region's economic center of gravity continues to shift eastward, Australia's services trade (education, finance, tourism) and agricultural exports are expected to maintain growth. However, the OECD also warns that global trade fragmentation could push up transport and compliance costs, which is particularly disadvantageous for Australia given its relatively isolated geographical location.

New Zealand: A "Green Premium" Driven by Climate Resilience

New Zealand's economy is anchored by agricultural exports and tourism, with dairy products, meat, and timber as major sources of foreign exchange. In the OECD's long-term scenarios, New Zealand's potential growth rate is usually lower than Australia's, but its per capita income level is comparable. New Zealand's strengths lie in its environmental brand and institutional quality, but its weaknesses are equally evident: aging infrastructure, low R&D investment, and geographical remoteness.

Climate policy occupies a special place in New Zealand's long-term development picture. As an active implementer of the Paris Agreement, New Zealand has legislated a commitment to achieving net-zero emissions by 2050. The OECD scenarios show that countries that pioneer carbon pricing will rely more on low-carbon technology innovation and green product premiums in the long run. New Zealand's dairy industry may benefit from market recognition of "sustainable milk sources," but at the cost of higher short-term costs and accelerated consolidation of pasture farms.

Another long-term variable is immigration policy. New Zealand's population growth is highly dependent on net migration inflows. If the demographic assumptions in the OECD scenarios are more conservative, potential growth will be dampened; conversely, if New Zealand can attract more high-skilled migrants, it will help ease labor shortages and increase innovation density. In the long run, New Zealand needs to find a balance between social carrying capacity and economic needs.

Pacific Island Countries: The Dilemma of Climate Risk and Development

For Pacific island countries, the OECD's long-term scenarios are more like a warning than a blueprint. These countries are usually not OECD members, but they are included in discussions of global long-term outlooks because of climate vulnerability and development financing needs. The increased frequency of hurricanes, sea-level rise, and ocean acidification caused by global warming directly threaten tourism, fisheries, and coastal infrastructure—precisely the lifelines of island economies.

The OECD's research on climate change and development emphasizes that adaptation costs are far higher than mitigation costs, and island countries precisely lack the upfront capital and fiscal buffers needed. If the long-term scenarios assume global warming exceeding 2°C, the potential growth rates of Fiji, Vanuatu, Solomon Islands, and other countries will be significantly weakened, as they would need to spend a large share of GDP each year on post-disaster reconstruction.

At the same time, island countries also possess unique long-term assets: vast exclusive economic zones, biodiversity, and marine energy potential. Fisheries and deep-sea mineral development may become new sources of revenue, but poor management can easily trigger ecological collapse. The blue economy framework advocated by the OECD offers island countries a governance approach to seeking balance between protection and development. The accessibility of development financing, the efficiency of climate fund allocation, and prudent planning of infrastructure investment will determine whether island countries can shift from passive adaptation to proactive development.## Regional Impact: Ripple Effects Across Borders

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

Conversely, the climate resilience of island countries is a matter of strategic stability for 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 countries. 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 marine resources in island countries. The assumptions on 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 forecasts 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, countries in Oceania will have greater incentive to compensate for insufficient external demand through "Pacific integration."

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

Over 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 countries 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.

Over the next five years (to 2030), structural factors will begin to dominate. A global carbon border adjustment mechanism may take effect, with substantial implications for Australia's carbon-intensive exports and the agricultural exports of island countries. 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 signaled an intention to transition toward higher value-added segments.

Over the next ten years (to 2035), the combined effects of demographic and technological change will fully emerge. The share of the working-age population in Australia and New Zealand will continue to decline, requiring automation and immigration policies as buffers. Pacific island countries, meanwhile, face the largest wave of youth population in their history; if sufficient employment is not provided, pressure on regional labor mobility will rise. The key assumptions in the OECD long-term scenarios—such as the extent to which artificial intelligence enhances productivity and biotechnology transforms agriculture—will have uneven impacts across different industries in Oceania.

Conclusion: The Non-Economic Equation of Long-Term GrowthThe OECD long-term economic scenarios remind us that Oceania's future is not determined by resource endowments or historical inertia. What truly shapes the long-term growth rate is policy choices, institutional quality, and the capacity for regional cooperation. Australia needs to break the "resource curse" by converting resource revenues into innovation capital; New Zealand needs to find a dynamic balance between agricultural protection and industrial upgrading; and the Pacific island states need to build resilience frameworks that address both climate risks and development needs. As the global order undergoes profound adjustment, whether Oceania can turn geographic disadvantages into connectivity advantages, population pressures into innovation momentum, and climate crises into opportunities for transformation will determine the level of prosperity that the next generation can enjoy.