SummaryThe New Zealand economy has swiftly rebounded from the technical recession seen in 2020.The central bank recently signalled a move away from stimulatory monetary policy settings embraced during the pandemic.It will be interesting to see whether New Zealand is able to sustain its growth charter throughout the rest of 2021.
The New Zealand economy has certainly experienced a robust rebound from the virus crisis on the back of remarkable
success in containing the COVID-19 spread. Massive stimulus packages and unprecedented monetary support announced in
response to the pandemic have seen the domestic economy recovering swiftly from the technical recession seen last year.
Towards this end, some economic indicators defining the country’s recovery from the COVID-19 storm need closer
attention.
Treasury’s NZ Activity Index - NZAC, which summarises key economic indicators of the nation’s economy, demonstrated an
11 per cent rise in economic activity in May 2021 relative to May 2020. Most of the constituent indicators summarised in
the index were well above the levels seen in May 2020, owing to a decline in activity levels last year resulting from
coronavirus alert level restrictions.
Much like NZAC, the recent performance of other economic indicators is keeping New Zealanders' upbeat on the economy’s
return to the pre-pandemic stage. Having said that, let us quickly scan through some economic forces stirring both hope
and optimism over the country’s swift revival from the Global Virus Crisis:
Faster than Expected Growth in GDP
As per the latest GDP figures from Statistics NZ, New Zealand has successfully avoided a second pandemic recession. The
country’s GDP grew by 1.6 per cent in the first quarter of 2021, following a 1 per cent dip in the December 2020
quarter, outshining analysts’ forecasts. The annual GDP also rose by 2.4 per cent in the March quarter, exceeding market
expectations of a 0.9 per cent increase.
The GDP data was in line with better-than-expected results recorded across several economic indicators in recent months,
including retail trade volumes and jobs growth. Additionally, the rapid recovery in economic growth prompted the central
bank to indicate a move away from stimulatory monetary policy settings embraced during the pandemic. In fact, the
Reserve Bank of New Zealand (RBNZ) became one of the first central banks in the world to signal monetary policy
tightening sooner than expected.
Also Read: Is New Zealand economy at pre-covid levels?
Much of the strength in the nation’s economy can be credited to successful containment of COVID-19 spread, accommodative
fiscal policy stance and low-interest rate environment. With the country’s economic growth back to its pre-pandemic
levels, it will be interesting to watch whether the nation will be able to sustain its growth charter throughout the
rest of 2021.
Bounce Back in Consumer Confidence
The latest survey has revealed that New Zealand’s consumer confidence has recovered most of the drop from 2020’s
COVID-19 lockdown. The Westpac McDermott Miller Consumer Confidence Index surged to 107.1 points in the June quarter
from 105.2 points in the previous quarter. Although June quarter’s consumer confidence level was a little below its
long-run average, it has been trending higher in recent months.
The survey also showed that households feel more optimistic about the outlook of the country’s economy over the coming
year. Households are anticipating that their own financial situation will continue to improve over the coming months.
Do Not Miss: Is Kiwi Consumer confidence on a recovery mode?
The optimistic projection of households seems to be driven by the state of the housing market. As Kiwis hold a lot of
their wealth in housing assets, the recent price gains in the housing market appear to have left many households feeling
upbeat over how their personal financial position is taking shape. However, one cannot neglect housing affordability is
also becoming an increasing hurdle for some families amid a rapid surge in property prices.
Small Business Sales Getting Better
Online accounting software company Xero has recently released its Small Business Index for May 2021, which paints a
picture of economic health utilising four metrics: payment times, sales, jobs, and wages. The latest small business
index from the Company has shown improvements in both jobs and sales figures for New Zealand’s small and medium-sized
enterprises during last month.
The data demonstrated that small business sales across the country grew by 6.2 per cent year-on-year in May 2021, with
businesses being paid nearly half a day faster. The hospitality businesses stole the limelight while experiencing the
strongest sales in over a year, buoyed by the Trans-Tasman travel bubble. Hospitality sales increased by an adjusted 7.5
per cent in May 2021, relative to a 4.2 per cent surge in the previous month.
While small businesses in the hospitality sector are enjoying increased sales, there is still a long way to go for these
businesses to return to pre-pandemic levels of growth. Besides, labour shortage continues to remain a major problem for
such businesses amidst the closure of international borders. As the nation continues to recover from the effects of
COVID-19, continued support from policymakers appears crucial to help small businesses thrive through the pandemic.
Looking forward, it will be interesting to see whether New Zealand will observe subsequent quarters of economic growth
on the back of improving labour market, growing consumer confidence, and burgeoning retail sales. The sooner resumption
of international travel and acceleration in the pace of the COVID-19 vaccination programme appears instrumental to
sustain the economic recovery.