Three Factors Shoring Up Confidence In The NZ Economy’s Revival From Virus Crisis

Thursday, 21 October 2021, 6:39 am
Press Release: Kalkine

Economic revival from the pandemic has taken diverse shapes across nations, making global recovery an asymmetric one. Moving against the tide, New Zealand has displayed exceptional resilience against the pandemic by staying extra vigilant and controlling the spread of the virus from the very beginning. Although the country is still struggling with the resurgence of infected cases, recent economic indicators suggest that the economy is sailing through the headwinds while exhibiting a decent recovery.

New Zealand’s resounding recovery from the pandemic continues to invite a mixed bag of reactions. In fact, the nation’s recent shift away from the COVID-19 elimination strategy has sparked fresh concerns around economic recovery. After much deliberation, the country has decided to abandon its strategy of eliminating coronavirus and intends to develop an action plan to live with the disease. This new strategy demands more focus on vaccination rollouts and constant regulatory checks to keep the virus in control.

Meanwhile, the recent lockdowns have ignited fresh challenges in the form of declining consumer and business confidence. A preliminary survey by the ANZ bank revealed that NZ’s business sentiment fell in October, with 8.6% of respondents expecting a deterioration in the economy over the year ahead. Additionally, the Westpac-McDermott Miller consumer confidence index declined to 102.7 in the September quarter from 107.1 in the prior quarter.

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Despite these headwinds, some factors show that the country’s economy is rebounding from the pandemic-induced slowdown:

Retail card spending edges up

New Zealanders increasingly embraced retail shopping as alert levels eased across the country. As per Stats NZ, retail card spending grew by 0.9% in September, as COVID-19 alert levels eased from Level 3 to Level 2. Surprisingly, card sales remained low in September, as the country was locked in higher alert levels. However, restrictions were brought down by the end of the month.

Moreover, seasonally adjusted retail spending rose by NZ$45 million, while total spending surged by NZ$104 million in September 2021, relative to the last month. However, for the entire September quarter, retail spending showed a decline of NZ$2.1 billion from the June quarter.

The data suggest that spending on groceries has been higher during the September quarter, both in shops and online. Thus, one can expect further increases in card spending as alert levels decline.

Budget deficit contracts

Interestingly, New Zealand’s budget deficit has contracted sharply on an economic rebound. As per the financial statements published by the Treasury Department, the country recorded a budget deficit of NZ$4.6 billion in the year to June 2021, surpassing market expectations.

As the jobless rate fell much more quickly than expected and economic activity recovered strongly, revenue was higher, and expenditure was lower than anticipated. This allowed the government to borrow less, making the net core debt amount equal to 30% of GDP, which was 4% lower than the original forecast.

The better-than-expected deficit indicates that the economy has responded well to the revival measures, and further growth can be expected in the coming months. Besides, an improvement in the budget deficit could translate into higher government spending on vaccination efforts and overall infrastructural development in Kiwiland.

Increase in interest rates

The Reserve Bank of New Zealand has recently raised interest rates by 25 basis points for the first time in seven years, marking a historic event for the country. Inflationary pressures plaguing the housing sector prompted the central bank to finally implement the much-anticipated interest rate hike.

While a rate hike had been on the cards for a long, the spread of the delta variant caused a delay in this extraordinary decision. Experts suggest that the market is well-positioned for a rate hike, and the current interest rate hike is well in line with ongoing expectations.

The central bank’s move has put New Zealand at the forefront of the global recovery process, given the fact that most other countries are still relying on fiscal stimulus and monetary expansion to continue economic revival. As New Zealand’s biggest city of Auckland remains in lockdown, policy experts continue to speculate the future course of the economy amid ongoing tightening measures.

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In a nutshell, New Zealand is at a crucial stage with various market events driving the performance of economic indicators. While some relief can be seen in the form of increased retail card spending and lower budget deficit, the future path for the economy appears cloudy amid lockdown restrictions. With a new outlook on combating coronavirus, it would be interesting to see if the country’s economy would once again outrun the speed of global recovery.

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