Decoding The Impact Of Omicron Variant On NZ Economy

Friday, 7 January 2022, 6:41 pm
Article: Kalkine

Summary

• The Omicron variant has fuelled concerns around the endurance of improving parameters in the New Zealand economy.
• Reports suggest that the Delta variant was not as harmful to the economy as initially predicted.
• New Zealand recorded its first Omicron case in mid-December 2021.

As the economy enters another year riddled with uncertainty, comparisons with the previous year’s situation have become an inevitable part of the journey. The recent improvement in economic indicators could lay down a strong foothold for the country in 2022. In fact, sectors such as construction, manufacturing and agriculture have beaten all odds, giving a much more stable outlook for this year. However, the new Omicron variant has come crashing down on an economy that has recovered only partially, fuelling concerns around the endurance of improving parameters.

While evaluating the changes in economic trends, many researchers have also established comparisons between the new strain and the previous one. According to the latest studies, the Omicron variant could be milder than the Delta strain. South African scientists have also vouched for the same, with no evidence suggesting that the Omicron variant is more dangerous.

Does this mean that the new variant will not bring any turmoil? Overall, speculations are rife about the new strain triggering lockdowns sometime in early 2022. While the durability of the New Zealand economy remains undeniable, volatility in some sectors, like housing and construction, continue to spark concerns.

Moving ahead with leftover momentum

In the previous year, the badly timed Delta variant hampered a successfully recovering economy, forcing businesses to restrict operations. The country was put in a temporary, nationwide lockdown in August 2021 in the wake of the Delta variant contagion. These restrictions lasted longer for Auckland, where the lockdown finally ended in December, after almost 15 weeks of shutdown.

The impact of such rigorous restrictions on one of the most strategic cities of New Zealand was detrimental to the economy. Forecasters had even predicted a recession much like the one seen in 2020. However, some economic indicators have inched up since the lockdown was lifted. According to Stats NZ data, the number of paid jobs increased by 0.52% over the seven days leading up to 20th December. With minor improvements, the economy has entered the new year in a better position, fuelling speculations that a drastic fall in GDP is likely to be avoided.

The economy relied on several easing measures to bring down the impact of the first wave, which included the reduction in interest rate by the central bank to stimulate liquidity and foster growth. However, the central bank reduced monetary easing soon after lockdowns ended. One can expect the New Zealand economy to exhibit greater self-reliance in the new year, with less help from easing measures.

INTERESTING READ: Omicron’s spread: How severely can it impact global recovery?

New system and improved vaccination to be guiding lights

New Zealand has adopted a “traffic light” system, under which regions are rated as red, orange, or green, based on the intensity of infections and the vaccination levels. The system is targeted to boost retail activity and can work as a better alternative than an all-out lockdown across regions. However, the authorities are looking for a more suitable action plan following an increase in daily virus cases.

In response to this, authorities have asked for an accelerated booster shot rollout in the country. While most of the population has received the double dose vaccination, their risk of catching the new strain is still high. The new variant is likely to spread more quickly than the previous strains and can infect even those individuals who have received their vaccination. Thus, the booster shot is expected to be the economy’s ray of hope in combatting the new virus strain.

Amid this backdrop, plans to open international travel are likely to be delayed further until the full impact of the Omicron variant is realised on the economy. Experts predict that this variant will likely become more dominant than the Delta variant in all affected regions.

While uncertainty looms ahead, some economists expect that price pressures may not spiral out of hand in the new year. With reduced monetary easing, the economy might respond differently to the potential restrictions. It will be enticing to see if the economy’s rebound will be as remarkable as seen last year once Omicron fears subside.

MUST READ: Where do we see NZ interest rates going from here?

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