Long-term economic scenario update: How can Oceania reshape its growth path amid global changes?

Introduction

The value of economic forecasting lies not in precise prediction, but in providing policymakers with a consensual framework of long-term constraints. When the Organisation for Economic Co-operation and Development (OECD) released its latest global Long-Run Economic Scenarios in 2025, governments, investors, and development institutions 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, attempting 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. Australia and New Zealand, as advanced economies, face the challenge of breaking through productivity bottlenecks, managing the green transition, and adapting to the restructuring of Asian demand; while a dozen or more Pacific island nations must explore a more resilient development path in a world of intensifying climate risks.

Background: The Multidimensional Framework of OECD Long-Term Scenarios

The OECD's 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 energy transition-related investment. The 2025 update further incorporates the scarring effects of the COVID-19 pandemic, risks of geoeconomic fragmentation, and the impact of net-zero policy commitments, building on previous versions.

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

In-Depth Analysis: The Multifaceted Growth Puzzle of Three Countries

Australia: Productivity Challenges 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 home to world-class solar and wind resources. In the long-term scenario, the global low-carbon transition will reshape the structure of commodity trade: traditional fossil fuel exports may face long-term demand contraction, while critical minerals—lithium, cobalt, and 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 its degree of 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. However, the OECD also warns that global trade fragmentation could raise transport and compliance costs, which would be particularly disadvantageous for Australia given its relative geographical isolation.

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

New Zealand's economy is anchored by agricultural exports and tourism, with dairy, meat, and timber as its main foreign exchange earners. In the OECD's long-term scenario, New Zealand's potential growth rate is generally lower than Australia's, but its per capita income level is comparable. New Zealand's strengths lie in its environmental brand and institutional quality, yet its weaknesses are equally evident: outdated infrastructure, low R&D investment, and geographic remoteness.

Climate policy holds 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 achieve net-zero emissions by 2050. The OECD scenario shows that countries that pioneer carbon pricing will, over the long run, rely more on low-carbon technology innovation and green product premiums. New Zealand's dairy industry may benefit from market recognition of "sustainable milk sourcing," but at the cost of rising short-term expenses and accelerated farm consolidation.

Another long-term variable is immigration policy. New Zealand's population growth depends heavily on net migration inflows. If the demographic assumptions in the OECD scenario are more conservative, potential growth would be dampened. Conversely, if New Zealand can attract more high-skilled migrants, it could help ease labor shortages and enhance innovation density. In the long run, New Zealand needs to strike 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 scenario is more a warning than a blueprint. These countries are typically 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.

OECD research on climate change and development emphasizes that adaptation costs far exceed mitigation costs, and island countries precisely lack the upfront capital and fiscal buffers needed. If the long-term scenario assumes global temperature rise above 2°C, the potential growth rates of Fiji, Vanuatu, Solomon Islands, and others would be significantly undermined, as they would need to allocate a large share of GDP to post-disaster reconstruction every year.At the same time, island nations possess some 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 could easily trigger ecological collapse. The blue economy framework advocated by the OECD offers island nations a governance approach that seeks a balance between conservation and development. The availability of development finance, the efficiency of climate fund allocation, and sound planning of infrastructure investment will determine whether island nations can shift from passive adaptation to proactive development.

Regional Implications: The Ripple Effects Across Oceania

The long-term scenarios of the OECD reveal not the future of isolated individual countries, but the close interconnectedness 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 overseas remittances account for more than 10% of GDP on a regular basis in countries such as Fiji and Samoa, with the majority coming from the diaspora in Australia and New Zealand. If the potential growth rates of Australia and New Zealand decline due to productivity stagnation, the foreign exchange earnings of island countries will also come under pressure.

Conversely, the climate resilience of island nations bears on 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 nations. In the long run, such cooperation could give rise to a kind of "climate community": Australia and New Zealand exchange capital and technology for the strategic depth and access to marine resources of the island nations. The assumptions regarding carbon prices and emission reduction policies in the OECD scenarios will affect the cost and scale of such cooperation.

The restructuring of trade corridors is equally significant at the regional level. The shipping connections between Australia's Northern Territory, Queensland ports, and Papua New Guinea and Timor-Leste are regarded as a key link in the future Asia-Pacific supply chain. OECD projections for global trade growth will determine the return on investment for these corridors. If global trade protectionism intensifies and the share of intra-regional trade rises, the countries of 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 (until 2028), Oceania's economies will be mainly constrained by the global inflation cycle and the direction of monetary policy. The central bank policies of Australia and New Zealand determine the pace of household consumption and investment, while island nations must cope with fluctuations in food and energy prices. The path of interest rate normalization in the OECD scenarios will affect the fiscal sustainability of each country.

Over the next five years (until 2030), structural factors will begin to dominate. The global carbon border adjustment mechanism may come into force, delivering a substantial impact on Australia's carbon-intensive exports and the agricultural exports of island nations. At the same time, whether the various economies of Oceania can seize the 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 10 years (to 2035), the combined effects of demographic and technological change will become fully apparent. The working-age population share of Australia and New Zealand will continue to decline, requiring reliance on automation and immigration policies as a buffer. Pacific island nations, meanwhile, will experience the largest wave of youth population in history; if sufficient employment cannot be provided, pressure on regional labor mobility will rise. Key assumptions in the OECD's long-term scenarios—such as the extent to which artificial intelligence boosts productivity and biotechnology's transformation of agriculture—will have divergent impacts across different industries in Oceania.

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

The OECD's long-term economic scenarios remind us that Oceania's future is not determined by resource endowments or historical inertia. What truly determines 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 environmental commitments; Pacific island nations must shift climate finance from "emergency aid" to "long-term investment."

For all Oceanian economies, growth is no longer a game that can be won by sitting back and reaping the rewards. Changes in global interest rates, carbon prices, trade rules, and geopolitics will all be transmitted to the coastlines of the South Pacific through countless mechanisms in the OECD scenarios. The cost of rejecting change will be more enduring than any economic recession.