Is New Zealand Economy Set To Turn The Corner?

Thursday, 4 February 2021, 1:01 pm
Press Release: Kalkine

Summary

• The recent performance of some economic variables suggests that Kiwi Land is swiftly returning to its pre-pandemic shape.
• The unanticipated decline in unemployment rate, positive trade surplus data and improving consumer confidence levels are offering glimmers of hope.
• Despite the green shoots, the emergence of second virus strain continues to remain a threat to the economy.

Undeniably, NZ paid a substantial economic price of its swift and effective lockdowns imposed against COVID-19. However, the nation has done a splendid job in containing virus spread. Besides, some recent economic statistics reveal that Kiwi Land is promptly returning to its pre-pandemic shape.

NZ was lately ranked at the top of a COVID Performance Index of almost 100 countries for its impressive handling of the pandemic. The nation is being widely lauded across the globe for its COVID-19 success story. Its early response to the virus outbreak has not only helped the country avoid a high number of infections, but also get the economy back on track.

After performing much better than anticipated in 2020, the NZ economy is now exhibiting some new green shoots of post-pandemic recovery.

Jobless Rate: Experiences Unexpected Fall

The NZ unemployment rate has again left the markets startled with its unanticipated fall in the December 2020 quarter. The latest data from Stats NZ shows that the jobless rate slid to 4.9 per cent in Q4 2020 from 5.3 per cent in the September quarter.

Moreover, the seasonally adjusted employment rate grew to 66.8 per cent in the last quarter from 66.4 per cent in the September quarter. Interestingly, feelings of job security also improved in Q4, with 79 per cent of respondents expecting almost little or no chance of losing their business or job over the next 12 months.

Notably, the construction industry lent a helping hand to the employment numbers, employing over 13,000 people over the quarter. As per Stats NZ, the boost in construction jobs counterbalanced job losses in the tourism and media-related industries over 2020.

The employment data reflects the promising impact of government and the central bank’s decisive actions taken to stimulate economic recovery. The latest dip in jobless rate has also eased out chances of a further cash rate cut by the central bank, mitigating the risk of negative interest rates.

Trade Surplus: Positive Despite Pandemic Woes

Stats NZ latest figures indicate that Kiwi Land observed its first-ever positive annual trade surplus in 2020 after 2011. Despite the COVID-19 pandemic, the nation recorded a positive trade balance of about NZ$3 billion in 2020. The trade surplus remained close to record high levels amid a sharp fall in annual imports and steady export numbers.

Imports tumbled by NZ$7.4 billion last year, reflecting the largest annual December dip since December 2009. The nation imported much less fuel in 2020 amid dried up demand for international travel due to border restrictions. Besides, car imports plummeted sharply after the closure of non-essential businesses during the lockdown. On the flip side, annual exports held their ground in 2020, surging by NZ$24 million last year.

Amid uncertainty prevailing over the re-opening of overseas borders, imports are likely to remain muted over the near future. However, the potential completion of the COVID-19 vaccination programme in 2021 may turn the tables around, boosting imports and exports.

Consumer Confidence: Continues to Shine

NZ consumer confidence levels have continued to gleam in 2021 after closing the year 2020 on a high. The latest ANZ-Roy Morgan NZ Consumer Confidence data demonstrates an uptick of 2 points in consumer confidence to 114 points in January 2021.

Consumers’ perceptions regarding the next year’s economic outlook also increased by 5 points last month. Upcoming vaccination drive along with the continued strength of the housing market appears to be keeping consumers optimistic about the state of the economy.

Additionally, 21 per cent of consumers (3 points up) supported the view that it is an apt time to purchase a major household product. The data reflects that consumers are substituting overseas holidays by buying major household items.

While the consumer confidence still remains well below 2017-19 levels, it is not much far off to its historical average of 120 points. The sooner rollout of COVID-19 vaccination program by March is further expected to give a leg up to the consumer confidence levels in the near future.

Bottom Line

Despite these promising indications on the economic front, one needs to be extra cautious before drawing an over-optimistic view, with second virus strain emerging as a threat to the economy. Besides, the fate of the NZ economy seems to be resting on the future performance of different economic indicators at foreplay and the nation’s success in completely stamping out the virus.

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