Economic Weekly: Hello 2021, please be kind!

Over the holiday period, no doubt many of us gave some sort of appropriate salute to 2020 and looked ahead to the prospect of a better 2021.  The start of the year is always a time for reflection, and there are a number of things worth thinking about as we look ahead to a year in which the economy should be in better shape than last year’s rollercoaster ride.

The most astonishing thing about 2020 was that – for all the upheaval globally – NZ’s economy rebounded sufficiently strongly in the September quarter (+14%!) that GDP is now higher than it was at the end of 2019.  That is a milestone we hadn’t expected for some time.  The bounce also puts us firmly ahead of many of our key trading partners.  We expected sharp rebounds in areas of the economy that were most affected by the March-June lockdown restrictions, but even so, the extent of the bounce in sectors such as construction and retail was more than anticipated.  You can read our review here.  Adaptability, huge financial support, and keeping COVID-free have all helped.

For 2021, we expect muted growth, somewhere around 1-2% in annual terms.  In part, that outlook reflects how quickly some sectors have already got back on their feet, and how swiftly households have responded to super low interest rates. But NZ’s largely closed border and the ongoing global economic impacts of the pandemic will continue to constrain NZ’s full economic potential for a little while longer.  Even as the first vaccines are being swiftly rolled out, the UK and a number of European countries have tightened up their COVID restrictions, which will drag on overall global growth.

Vaccination will still take a while to roll out in NZ and globally, leaving vulnerabilities in place and ongoing restrictions at our border.  The new strains of COVID-19 – particularly the virulent UK one – create added threats to both when our border can be safely opened up and to the idyllic COVID-free way of life we have returned to.  Vulnerabilities remain, and in 2021, vigilance will remain the price of liberty from COVID-19.  Mark Smith’s Watch List for 2021 gives more thoughts.

This week the NZ data flow starts off with an update on the extent of the Christmas spend-up (via Electronic Cards Transactions), net migration flows (still very subdued), and Q4 inflation figures.  We expect inflation to be low for late 2020 and much of 2021, with an annual rate of 1.1% anticipated for Friday’s December 2020 quarter release.