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Three Factors Uplifting Confidence In New Zealand Economy

Highlights

  • Most economies have been directly impacted by global supply chain disruptions, including New Zealand.
  • The economic growth data for December 2021 quarter showed a remarkable improvement over the September 2021 quarter.
  • As international travel reopens and infected cases decline, New Zealand seems to be moving one step closer to the pre-pandemic levels.

After battling a pandemic-related slowdown for almost two years, the New Zealand (NZ) economy is finally showing signs of a rebound. With effective control of virus spread, New Zealanders could see a prompt return to normalcy, which involves hassle-free living without any restrictions.

However, one cannot neglect that global market events have taken an unfavourable shape in recent weeks. While NZ’s economic rebound seems unaffected currently, most countries have been directly impacted by supply-side disruptions, including the domestic economy. But the recent performance of economic indicators appears to be shaping an overall positive outlook for the NZ economy.

The domestic economy has been able to sustain through ongoing headwinds with the help of some momentum gained during the last few months of 2021. The economic data for December 2021 quarter showed a remarkable improvement over the September 2021 quarter amidst a reduction in the Delta variant spread. 

In this backdrop, let us discuss three factors that are boosting confidence in the NZ economy:

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GOOD READ: How will a cut in fuel taxes impact Kiwis amid Russia-Ukraine war?

Economy bounces back

The latest data from Stats NZ reveals that the New Zealand economy expanded by 3% in the December 2021 quarter, following a fall of 3.6% in the September 2021 quarter. With this rise in GDP, the average annual economic growth rate rebounded to 5.6% in 2021, marking a major improvement over the previous year. 

While the December quarter results were lower than the market expectations, the data surpassed the Reserve Bank’s projections, which anticipated a lower growth rate of only 2.3%.

Less restrictive COVID-19 restrictions fuelled an improvement in economic growth. Unlike the September quarter, the last three months of 2021 saw waning restrictions, which helped businesses resume their operations. 

Notably, the business services and retail trade sub-industry led the economic growth in the last quarter. The sub-industry belongs to the larger parent industry of retail trade, accommodation, and restaurants. Additionally, high levels of activity in manufacturing sub-industries helped drive the economy.

It is worth noting that this economic growth relates to the pre-war scenario. A lot has changed since the December 2021 quarter, the impacts of which would be possibly visible in the March 2022 quarter GDP numbers. The effects of rising inflation, growing supply chain disruptions, and interest rate hikes are expected to reflect in the next economic growth data. 

International travel reopening soon

New Zealand has gained much infamy as being the nation with the harshest pandemic-related restrictions in the world. However, the situation is set to change as the country will soon open its doors to travellers from visa-waiver countries. The NZ government has planned to reopen international borders for all foreign tourists from May 1 and for Australians starting April 12. 

International tourism is an integral part of the Kiwi economy as it generates multiple employment opportunities for the country. The revenue obtained from foreign tourists is also crucial in boosting the overall economic growth. 

Over the last two years, the pandemic has significantly impacted the tourism and hospitality sectors lagging financially amidst international border closures. However, the country is now set to welcome vaccinated tourists from visa-waiver countries, including the UK, Japan, Germany, South Korea, the US, and Singapore.

While this may be positive news for travel-hungry foreigners, Americans might not cheer as the US recently added NZ to the highest risk category among all international destinations. Despite these challenges, NZ is leaving no stone unturned in ensuring that incoming tourists are satisfied. NZ is making multiple efforts to encourage tourists to visit the country, including introducing a winery airline and creating tourism-friendly campaigns. 

Auckland moving past its Omicron peak

Previously relying heavily on vaccine passes, Auckland might see some relaxation in restrictions in the coming days. With the virus cases reducing in Auckland, the NZ government is planning to review COVID-19 regulations soon. The revision could also apply to mandates and settings within the traffic light system. 

Although Auckland seems to be moving past its Omicron peak, the government has advised citizens to remain cautious. The government will use the number of hospitalisations as a metric to judge how peaks are panning out across cities, including Auckland. It will wait for a few more days to achieve some degree of certainty on the matter. 

It is anticipated that Auckland will enter a new traffic light setting in the coming days as cases decline gradually. Most importantly, there is strong evidence suggesting that vaccine passes may not be as necessary for the current climate as they were previously. 

These positive developments might allow New Zealand to move past the deadlock created by international market events. With the central bank potentially carrying out further rate hikes in the coming months, the country may expect a cool down in inflation rates. However, as many varying factors come together, the overall impact of global market events and the central bank’s moves seems uncertain for the economy. 

GOOD READ: NZ mulls fuel tax cuts to ease pressure at the pump

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