Is New Zealand Returning To Its Pre-Pandemic Settings?

Friday, 15 April 2022, 5:50 am
Press Release: Kalkine

Summary

• New Zealand appears to be gradually returning to normalcy post the COVID-19 outbreak.
• The Reserve Bank of New Zealand recently conducted its fourth rate hike, taking the official cash rate to 1.50%.
• Reopening of international borders and easing domestic restrictions also point to a better economic outlook.

As the entire world awaits a return to normalcy, New Zealand seems closer to achieving this goal than many other countries. With infected cases taking a back seat and the virus restrictions easing, Kiwis appear to be looking at living life the pre-pandemic way. However, the country might need more time before its economic conditions reach the conventional standards.

It is worth noting that a complete return to pre-COVID-19 conditions might not be feasible because of many interruptions to the global economy seen over recent months. Specifically, the Russia-Ukraine war has disrupted existing supply chains, hurting an already depleted supply of goods and services.

Despite these global concerns, some green shoots are hinting towards the return of the New Zealand economy to the pre-pandemic state. Let us take a quick look at the factors injecting positivity into the country’s outlook.

Rising interest rates

New Zealand has been one of the first few nations to embrace a rate hike as soon as the pandemic-related uncertainty receded. The Reserve bank of New Zealand (RBNZ) recently delivered its largest interest rate hike in about 22 years of 50 basis points. This marks the fourth rate hike by the RBNZ since October 2021, after three hikes of 25 basis points each.

Though market forecasters had largely anticipated a rate hike, only a few had estimated a jump of 50 basis points. Continuing on its aggressive rate tightening streak, the RBNZ is leaving no stone unturned to control inflation and the red-hot property market.

With the latest move, the official cash rate (OCR) in New Zealand now stands at 1.50%. The current interest rate is closest to the level prevailing during pre-pandemic times. The OCR in March 2019 stood at 1.75% before it was lowered to 0.25% in March 2020.

GOOD READ: In a hawkish move, RBNZ raises OCR by 50 basis points

Reopening of international travel

After more than two years of isolation, the New Zealand government has opened international borders for vaccinated travellers from Australia. This is a monumental feat for the country as New Zealand’s pandemic-related restrictions were one of the toughest in the world, leading to widespread protests and rallies by the citizens.

Apart from Australian tourists, temporary workers and students from other parts of the world can travel to New Zealand, provided they have received two doses of the COVID-19 vaccination. The easing of restrictions seems more promising at a time when there has been no resurgence in cases for a while now.

Though some cases of the Omicron variant are still being reported, vaccinated individuals seem to be facing fewer risks of catching the virus. The border reopening further appears to be a boom for the country’s agricultural sector as workers from abroad are expected to meet supply shortages, filling jobs in the dairy, meat processing and forestry sectors.

Easing of COVID-19 regulations

Perhaps the most telling sign of a return to normalcy is the latest change in alert levels seen across the country. The gradual relaxation of the settings has contributed immensely to the nation’s economic recovery. The country has dropped from red to the orange traffic light setting due to a decline in infected cases.

The orange traffic light setting signifies that there are no longer any indoor or outdoor capacity limits and no seated and separated rules. However, individuals would have to wear face masks for self-protection, but they would no longer be mandatory.

The move is expected to be highly beneficial to the local businesses as most of them can now resume activity without any interruptions. Additionally, the shift to an orange setting would prompt consumers to step out of their houses and engage in offline retailing and dining.

With the central bank aggressively raising interest rates, borrowing could become more expensive for businesses and consumers in the coming months. Consequently, consumers might curtail their expenditure on household goods, potentially contributing to a slower economy in the near term.

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