Productivity for small and medium-sized businesses in New Zealand is lagging behind Australia and the UK, but the sector has meaningful opportunities to bridge the gap over time, according to data published by Xero (ASX:XRO) on Thursday.

The data measured the dollar amount produced per hour worked for a typical worker in a small business, finding that New Zealand's small business labor productivity averaged NZ$74 per hour worked in the March quarter, down from NZ$75.30 in the December 2025 quarter.

The March quarter reading is broadly in line with the previous six months but remains below the long-term average of NZ$76.30 per hour, underscoring a continued period of subdued productivity growth, Xero said.

Productivity per employee has also softened, averaging roughly NZ$9,169 in the March quarter, down from NZ$9,389 in the previous quarter.

"The encouraging part is that there are clear levers - from digital adoption to skills and process improvements - that can help close that gap over time," said Bridget Snelling, New Zealand country manager at Xero.

"Policy settings that support skills development, infrastructure and digital adoption play a key role in lifting productivity across the economy, while targeted attention in lower-performing sectors such as hospitality could help unlock further gains," Snelling added.