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Zoom Your Lens Over Bright Spots Dazzling In The NZ Economy

Summary

  • NZ economy appears to be gradually resurrecting from its worst economic contraction in June 2020 quarter, offering glimmers of hope in this pandemic-afflicted environment.
  • NZD/USD pair has rebounded by over 17% from the March 2020 dip, when the virus-led market downturn was in full swing.
  • The gradual easing of lockdown restrictions in Auckland and rest of the Kiwi Land after August closures stimulated retail card spending in September 2020.
  • The NZ property market has been shrugging off COVID-19-driven risks since June 2020, logging exceptional recovery in the property prices.
  • ANZ business confidence lifted by 14 points in the first week of October from -28.5 points in September.
  • Sustenance of critical government reforms and continued monetary policy support are likely to play a critical role in running the show for the NZ economy.

While Kiwi Land observed its worst economic contraction in June 2020 quarter amidst COVID-19-driven repercussions, the nation’s economy appears to be gradually resurrecting from the technical recession. NZ’s dedicated response in containing the virus spread and getting the economy back up and running seems to have reduced the short-term economic turbulence of the Global Virus Crisis.

Though NZ witnessed a steeper drop in June quarter’s GDP (12.2%) relative to other developed nations, the country appears to be returning to economic activity in a much better position. Kiwi Land’s successful control over second infection wave, coupled with its swift movement from Auckland’s stringent lockdown restrictions to Alert Level 1, seems to be fueling the economic recovery.

Against this backdrop, let us quickly discuss some silver linings gleaming across the NZ economy that are offering glimmers of hope in this pandemic-afflicted environment:

Domestic Currency: Going from Strength to Strength

While the virus-driven fears and concerns induced a sharp rally in the US dollar initially, the greenback has been under some pressure over the last few months against several currencies, including New Zealand Dollar (NZD). Notably, the NZD/USD pair had rebounded by over 17% to date from the March 2020 dip, when the virus-led market downturn was in full swing.

NZD has been gaining momentum on the back of weakening American dollar, the strong performance of the NZX 50 index and effective virus containment. Besides, dedicated government support, robust trade surplus, and better than expected performance of the NZ economy are also playing a crucial role here. Additionally, the domestic currency appears to be closely tracking renminbi’s shifts against the USD, given the strong trade links between NZ and China.

Expectations over additional US stimulus spending and potential win of Joe Biden as the US President have been contributing to NZD’s upturn recently. However, the possibility of NZ interest rate dipping to negative territory in 1H 2021 may turn the tables around, exerting pressure on Kiwi dollar.

Retail Sales: Coming Out of the Woods

Although the second phase of COVID-19 lockdown in Auckland delivered a huge blow to retail card spending in August 2020, NZ retail sales appear to be soaring back to life. The September data from Stats NZ demonstrated a surge of 7.3% in retail spending using electronic cards. Notably, the data showed that the card spending on household and recreational goods climbed to unusually high levels in September.

The recently released Retail NZ Retail Radar report also exhibited a similar turnaround in retail sales in September, with reported retail sales increasing by 19.6% on a Y-o-Y basis.

The gradual easing of lockdown restrictions in Auckland and rest of the Kiwi Land after August closures appears to have lent a helping hand to retail card spending. Besides, some well-deserved retail therapy by Kiwis and intensification of an online presence by NZ retailers seem to have acted as salvage here.

Property Prices: Hitting Record Highs

The NZ property market has been shrugging off COVID-19-driven risks since June 2020, logging exceptional recovery in the property prices.

The Real Estate Institute of NZ (REINZ) noted a record Y-o-Y increase of 11.1% in the House Price Index during September, with index surpassing 3,100 mark for the first time. Besides, REINZ reported a Y-o-Y surge of 37.1% in the sale of residential properties during the month, with monthly sales reaching their highest levels in the last 14 years. Furthermore, Stats NZ’s latest figures demonstrated an uptick of 3.3% in the rental property prices during September relative to the prior corresponding period.

Th prevailing level of low-interest rates, relaxed COVID-19 restrictions, burgeoning confidence in the housing market and increased savings appear to be instilling the strength in the NZ property market. It would be interesting to discern whether this momentum will continue over the next year or the property space will face some sort of storm from the upcoming NZ election.

Business Confidence: Picking Up Pace

With NZ returning to normal life post containing the second community spread of coronavirus outbreak, ANZ business confidence lifted by 14 points in the first week of October from -28.5 points in September. Additionally, businesses’ own activity outlook improved to 4% over the week, marking an astonishing recovery from -55% in April.

While investment intentions continued to remain subdued in early October, employment intentions improved by ~9 points from -11.8 points in September. Consequently, just a net 3% of companies intend to lower employment in the future, which is an encouraging response at a time when wage subsidies have been rolled off.

The effective containment of coronavirus transmission and relatively better performance of NZ economic indicators than other overseas countries appear to be steering businesses confidence despite market turmoil. However, the existence of overseas travel restrictions continues to remain a stumbling block in business activities’ revival to pre-COVID-19 levels.

Bottom Line

While several green shoots are sprouting in the NZ economy signalling V-shaped recovery from the virus crisis, uncertainty remains on the state of consumer confidence that plunged to its lowest level since the Global Financial Crisis in the September quarter. Moreover, the sustenance of critical government reforms and continued monetary support from the central bank are likely to play a critical role in running the show for the NZ economy.

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