- ASB Bank and OECD have provided a brighter economic outlook for the NZ economy.
- Several green shoots are sprouting in labour, property and retail markets despite COVID-driven headwinds.
- Optimism is growing over COVID-19 vaccine development and advancing prospects of global economic growth.
The Global Virus Crisis (GVC) pushed the NZ economy into its worst recession in years with two straight quarters of contraction in 1H 2020. Subsequently, Kiwi Land has been able to get its economy going faster than several other countries, backed by its strong economic and health response against the pandemic.
ASB Bank’s recent forecasts suggest that the NZ economy is anticipated to end 2020 just 3 per cent down relative to 2019. The bank is expecting around half the decline in GDP it projected at the start of the March lockdown.
Organisation for Economic Co-operation and Development (OECD) has also provided a promising outlook for the economy. OECD expects the nation’s economy to contract 4.8 per cent in 2020, and then grow by 2.8 per cent and 2.7 per cent in 2021 and 2022, respectively. The international organisation’s economic forecast is better than the NZ Treasury's Pre-election Economic and Fiscal Update released in mid-September 2020.
Given this backdrop, let us quickly scroll through some emerging trends defining the NZ economy’s recovery scenario:
- Labour Market Coming Back to Life
While COVID-driven shutdowns and business restrictions initially lifted layoffs in the NZ labour market, the situation is now taking a turn for the better.
The Commission for Financial Capability’s (CFFC) October survey results suggest that household incomes are exhibiting some recovery in Kiwi Land. About two-thirds of households have been found to earn the same income or higher than they were before COVID-19 hit. Over 10 per cent of households have reported a surge in their income levels relative to February 2020.
Importantly, the unemployment rate statistics unveiled by Stats NZ for September 2020 quarter were also better than expected. The jobless rate rose to just 5.3 per cent in Q3 2020 as against anticipations of over 10 per cent rise.
The unemployment rate marked its biggest quarterly increase on record during the September quarter. However, the extent of a rise in the jobless rate is likely to be limited over the coming months. Besides, the government’s recent plan to raise the minimum wage to NZ$20 per hour from 2021 is anticipated to make the workforce better off.
- Property Market Going Great Guns
Kiwi Land’s red-hot property market has been defying all expectations in virus crisis, with house prices soaring to fresh record highs despite recession woes.
As per the latest CoreLogic House Price Index, NZ’s nationwide property values expedited further by 2.1 per cent in November following increases in both September and October. The property consultant credits housing shortage across the entire country for this surge in property values.
New Zealanders seem to be shifting their preferences to holidays amidst approaching Christmas season, saving a decision like selling their property for 2021.
Besides, the latest projections from Westpac New Zealand indicate that the property prices could peak at 16 per cent in June 2021 before slightly falling to 12.2 per cent by 2021 end. The bank attributes this increase to prevailing record-low levels of interest rate, which is expected to stay low or dip further over the coming year.
The NZ housing market is faring better than several advanced countries worldwide, where property markets have been on a tear. However, housing shortage continues to create a big strain on the Kiwi property market, with house owners reaping the benefits of asset price appreciation relative to renting population hard-hit by the pandemic.
- Retail Market Rising from the Ashes
Kiwi Land’s months-long restrictions initially brought retail sales growth to a grinding halt. Notably, the retail market is now bouncing back strongly from lockdown effects.
Latest Retail NZ Sales Index demonstrated that the retail sales continued to remain robust in November on the back of Black Friday, Singles Day, and Cyber Monday. Remarkably, NZ’s total retail spending in November since March 2020 was 3.4 per cent ahead of the same nine months last year. Besides, retail spending in November 2020 was 25.7 per cent higher compared to last year figures.
NZ retail sales also experienced their highest growth on record during the September quarter, with sales rising by 7.4 per cent in Y-o-Y terms. Stats NZ September quarter estimates indicated that 14 of the 16 Kiwi regions had higher retail sales values in Q3 2020 as against Q3 2019.
The sharp improvement in retail sales figures came amidst improving consumer confidence levels, pent-up demand due to shutdowns, unprecedented government support and economic revival signs. Besides, international border closures seem to be shifting Kiwis attention towards their homes from the usual overseas travel plans ahead of Christmas season.
These promising developments in the Kiwi economy are sprouting at the time when optimism is growing over COVID-19 vaccine development and advancing prospects of global economic growth. No doubt, there is much room for improvement across several sectors in the NZ economy battling the virus crisis. But it is hard to neglect the nation’s fast-paced progress in reviving from COVID-19 economic shock.