Small businesses need to step up and fill the void left by other sectors whose growth is dwindling, says a leading economist.

Bagrie Economics managing director Cameron Bagrie said growth in agriculture and other industries which the New Zealand economy had traditionally relied on would falter over the next couple of years.

"If you look at agriculture, parts of agriculture that are under the gun, and petroleum and the mining industry, collectively those sectors in the past 20 years have given New Zealand 0.1-02 percentage points to GDP growth every year," Bagrie said.

"The growth out of those sectors is going to be [zero].


"We have big shoes to fill in regards to what is going to be replacement vehicles for growth going forward. Small business across New Zealand is going to be a big champion in regards to that change and filling that void," he said at the launch of accounting software developer Xero's new small business insights tool.

"Economic policy direction is changing and that's a good thing, but the big uncertainty at the moment is how we're going to accelerate, turbo-charge SMEs, to fill that void."

The OECD estimates that half of the growth in employment going forward will come from small and medium-sized businesses.

According to data from Xero's "Small Business Insights" tool, gathered from its 300,000 subscribers, New Zealand SMEs employ a third of the nation's 2.62 million-strong labour force and account for about a quarter of economic activity.

Small business employment rose at an annual pace of 8-10 per cent in the past 12 months, outpacing the 3.1 per cent growth in new jobs nationwide.

"It looks to me like already small to medium size enterprises are accounting for about two-thirds of the employment growth across New Zealand," Bagrie said.

Small firms' export share into Australia was "massively over-represented", Bagrie said, accounting for between 60 and 70 per cent of all exports.

"It's logical, if you're in Dunedin there's no difference exporting to Auckland versus exporting across the ditch to Sydney," he said.


But on the flipside, he said SMEs were under-represented in Japan, the world's third-biggest economy. "New Zealand is massively under-represented in Japan. For some reason, SMEs cannot crack the Japanese market."

Xero New Zealand country manager Craig Hudson said trading overseas was seen as the "economic barometer" of New Zealand's success.

Hudson said Xero hoped its real-time insights, which it will publish each month, will help policymakers and businesses make informed decisions.

"We have the opportunity to create the most vibrant small business community in the world here in New Zealand. There is great opportunity for us to stand out and lead the world for supporting small business and entrepreneurship," he said.

There is great opportunity for us to really stand out and lead the world for supporting small business and entrepreneurship.

"Small business will be the engine for growth. These New Zealand small business insights, if nothing else, put a spotlight on what has been a hidden economy."

The world needs to create 40 million jobs globally, each year, to keep up with population growth, and the majority of those will be in the SME sector, small business Minister Stuart Nash said.

Nash welcomed the new tool and said it would help when developing policy to support small business.

"When small businesses succeed we all benefit but we do need to build strong foundations to optimise the chance of success," he said. "We usually think of exporters as big companies but almost a quarter of all small businesses export, and market access is crucial for improving New Zealand's export performance."

Nash said the country needed to grow SMEs share of GDP.