As the Northern hemisphere heads into winter and continued lockdowns, the sun is shining on New Zealand, with the latest ASB Quarterly Economic Forecast predicting just a three percent annual decline by year end – a significantly better outlook than the six or seven percent predicted in March.
In the first six months of the year, New Zealand’s economy contracted 13.4 percent as a result of the strict four-week lockdown, however, a smoother than expected exit from lockdown and return to normality has seen Kiwis’ reaching for their wallets. By October, spending on most retail sectors was back to pre-COVID levels, and significantly up in several areas.
ASB chief economist Nick Tuffley says, “Fear of losing jobs has quickly given way to fear of missing out on a bargain or some fun, and the sheer degree of support the economy has received means the country has fared far better than previously expected. Globally, New Zealand is faring better in 2020 than many developed countries, with estimated annual declines of seven percent in the EU and 11 percent in the UK, compared with our forecasted three percent in New Zealand.
“Given the events of 2020 and the impact of COVID, to finish the year down only three percent from 2019 is phenomenal. However, we need to remember that much of that drop is concentrated in the tourism sector, which continues to be held back by the border closure.”
“With house price expectations at a record high and the labour market performing better than expected, our forecasts are certainly looking a lot rosier than we could have predicted in the first half of this year. Given how strongly households have responded to recent low mortgage rates, we no longer expect the RBNZ to cut the OCR to a negative level.”
The latest Economic Forecast points to New Zealand’s 2020 economic outcome being similar to Australia’s, with both countries benefitting from China’s rebound, although Australia’s 2021 recovery is expected to be stronger given New Zealand’s ongoing border constraints.
“China’s rebound has been particularly good for our key commodity and food exports, which have held up well. For the 12 months ending September, exports of dairy, meat, fruit and wine were all well above the previous year, which has helped offset the 43 percent decline in the export of services, in particular international tourism.”
Looking beyond New Zealand, the pandemic continues to batter international economies, with predictions for a sizeable global economic contraction for the year and output remaining below pre-COVID levels for some time.
Despite recent vaccine news there are big headwinds remaining. Although several candidates have yielded positive vaccine results in trials, widescale distribution may be some time away, and in the near term, worsening outbreaks and reintroduced restrictions continue to weigh on economic activity.
“Some places have begun to lift measures, but others may extend restrictions deep into winter,” says Mr Tuffley.
“Given the global challenges, we remain relatively cautious about the pace of growth for 2021 and 2022. We expect growth prospects to be muted over 2021 with the border likely to stay closed, and weak global growth limiting our export performance. Vaccine distribution at a level where border restrictions can be relaxed will still be some time away, so in our view, strong New Zealand and global recoveries are a story for some time in 2022.”
The latest ASB Quarterly Economic Forecast will be available online at https://www.asb.co.nz/documents/economic-research/quarterly-economic-forecasts.html
Other recent ASB reports covering a range of commentary can be accessed at our ASB Economic Insights page: https://www.asb.co.nz/documents/economic-insights.html
All enquiries should be directed to: