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Is New Zealand Economy On The Way Up?

Summary

  • It seems the NZ central bank’s decision to increase interest rates was well-timed.
  • The resilience of the NZ economy could be seen in the labour market, property market and the retail sector.
  • The fast-spreading Omicron variant could invite fresh challenges for the country’s economy.

After a year riddled with turmoil and uncertainty, New Zealand seems to have entered 2022 with a relatively better outlook. An improvement in leading economic indicators suggests that the Kiwiland may see better times ahead as recovery is on the way. The recent revival in major economic indicators has provided some respite from the dismal scenario seen last year after the Delta variant caused global wreckage. In a way, the economy has much to look forward to in the new year.

New Zealand has set a global example in curtailing the spread of the COVID-19 pandemic. The country’s stringent measures against the virus helped it stand back on its feet following the 2020 recession. However, soon after, the Delta variant unfolded rapidly, causing major unrest in Auckland. The result was a slowdown in business activities, which opened a new can of worms for retail, manufacturing, travel, and construction sectors.

However, the central bank’s decision to increase interest rates came perfectly timed, prompting a cool off in the overheated economy. With several economic indicators suggesting a gradual recovery, further rate hikes can be expected in the months ahead.

Against this backdrop, let us discuss some key market trends reflecting the resilience of the NZ economy.

Labour market - Improving employment

November 2021 was a month packed with promising market forces, the most prominent being rise in employment numbers. As per Stats NZ, the number of filled jobs rose 0.4% month-on-month in November, representing an addition of 9,395 jobs. The substantial increase in jobs was seen in the construction sector and professional, scientific & technical services domain, where jobs surged by 8.6% and 8.2%, respectively.

A major chunk of these newly filled positions belonged to Auckland residents, where the number of filled jobs increased by 4.7% relative to November 2020. Moreover, the Bay of Plenty recorded the largest yearly jump of 4.9% in the number of filled jobs.

Notably, the ANZ monthly economic indicator also hinted at the sharp recovery of the country’s labour market from pandemic-induced disruptions. The Infometrics Monthly Employment indicator suggested the higher-than-expected resilience at the tail end of prolonged Delta restrictions and indicated earnings rising at the fastest pace on record. The rise in wages can be credited to the additional bargaining power achieved by the workers amidst the lack of a skilled workforce.

Property market – Easing supply constraints

Supply constraints have sent property prices to new all-time highs over the last one and a half years, urging many to take a timely exit from the market. However, the latest reports suggest that new dwellings have risen at a record-breaking rate in New Zealand. Stats NZ reported that new dwellings consented finally rose by 0.6% in November 2021, after decreasing by 2.1% in October. Relative to November 2020, new dwellings consented surged by 26% to 48,522 dwellings.

Notably, 2,126 new stand-alone houses consented in November alone. Additionally, Canterbury saw the sharpest hike of 30% in new dwellings consented.

The rising work-from-home culture has redefined how people view their housing needs. The demand surge has created space for multi-unit homes like townhouses and apartments, which can accommodate many homebuyers without compromising on private space.

Apart from increased residential housing needs, the previous year also enhanced the requirement for sufficient equipment and estate for the healthcare sector. Among non-residential buildings, hospitals and nursing homes saw the biggest spike in new dwelling consents.

GOOD READ: IMF- emerging economies must prepare for Fed policy tightening

Retail sector – Booming sales

As per Stats NZ, New Zealanders spent an additional NZ$543 million in the retail industries in November 2021 alone, compared to October. The momentum continued in late December and early January when shoppers flocked the markets for holiday celebrations.

Retail sales are generally the earliest to spike with increasing consumer confidence in the economy. As soon as restrictions eased, consumers crowded the markets, cooling off some pent-up demand for goods and services. Additionally, the holiday season added to the consumer frenzy, providing the perfect setup for consumers to relieve their long-built demand.

The period between year-end and New year was marked with heavy core retail sales, which broke records seen in pre-Covid times. Thus, the markets are experiencing booming demand, with shoppers quenching their longstanding needs to buy consumer goods.

The NZ economy seems well-positioned to take on any additional challenges ahead. A slowdown in economic activity could seep in because of the fast-spreading Omicron variant. However, buoyant demand is likely to keep the businesses afloat and prevent any unprecedented havoc in the economy.

GOOD READ: World Inequality Report 2022

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