WELLINGTON - New Zealand will get its youngest prime minister in more than 150 years after the small, nationalist New Zealand First Party agreed to form a new government with Labor Party leader Jacinda Ardern, ending the National Party's decade in power.
The outcome caps a remarkable rise for Ardern, 37, who only took over the party's top job in August, and marks another victory for a youthful global leader promising change, with big implications for the world's 11th most traded currency, the central bank, immigration and foreign investment.
Labor had an even chance as National to form a government after inconclusive elections on Sept 23 gave neither party enough seats to form a majority in parliament.
"Their tighter immigration proposals and more restrictive housing policy all suggest economic growth could be a little bit weaker than the Nationals' policy," Paul Dales, chief Australia and New Zealand economist at Capital Economics, said of Labor.
"The chances of a sharper slowdown are higher under Labor."
The announcement of the new government drove the New Zealand dollar down around 1.7 percent to its lowest levels in four and half months, as markets worried about more protectionist policies to come.
"Labor has always believed that government should be a partner in ensuring an economy that works and delivers for all New Zealanders," Ardern told reporters.
Labor said it would stick to its campaign promise to change the central bank's mandate, seek to renegotiate the Trans-Pacific Partnership trade deal and prioritize an effort to ban foreign ownership of certain types of housing.
It has said it wants to add employment to the central bank's mandate, which would mark a big change for the Reserve Bank of New Zealand which was the pioneer of the inflation-targeting regime adopted across the world.
Record net migration of more than 70,000 annually has fuelled demand for housing in New Zealand, far outstripping supply and pushing house prices prohibitively higher, pricing ordinary New Zealanders out of the housing market.