Three Economic Indicators Defining NZ Recovery From COVID-19 Storm

Friday, 29 January 2021, 12:49 pm
Press Release: Kalkine

Summary

• NZ economy is exhibiting some promising signs of revival, keeping Kiwis upbeat on the swift return to the pre-pandemic state.
• Economic indicators, including CPI, retail spending and house prices, are drawing considerable attention.
• A sooner and successful vaccine rollout will be paramount in sustaining the nation’s recovery from virus crisis.

No doubt, the fresh COVID-19 community transmission in two months has raised the alarm for Kiwi Land, which is yet to receive its first batch of Pfizer vaccines. However, the country still appears to be better placed in terms of virus management and economic woes. NZ’s “go-hard, go-early” strategy against coronavirus seems to be ruling in favour of the economy that is heralding encouraging signs of recovery.

Treasury’s NZ Activity Index (NZAC), which summarises key economic indicators of the country’s economy, exhibited a 1.5% rise in economic activity in December 2020 relative to December 2019. The NZAC latest update for December 2020 further highlighted that the number of jobs advertised on SEEK revived to 2019 levels for the first time since the advent of COVID-19.

Akin to NZAC, the recent performance of other economic indicators is keeping Kiwis upbeat on the economy’s return to the pre-pandemic state. With that said, let us quickly discuss someeconomic forces stirring both optimism and hope over NZ’s recovery from the Global Virus Crisis:

1. Consumer Price Index: Outstripping Forecasts

The Consumer Price Index or CPI fared much stronger than anticipated in December 2020 quarter, defying market expectations. Stats NZ latest figures suggest that headline inflation grew 0.5% on Q-o-Q basis in Q4 2020, surpassing forecasts of 0.2% surge. Moreover, the annual inflation rate was 1.4% during the quarter against projections of 1.1%.

The last quarter’s CPI data came as a surprise amid the Reserve Bank’s latest prediction of inflation falling below the bottom of its 1-3% target range in the medium term. Although the inflation still prevails below the central bank’s 2% midpoint, the risk of deflation seems to be waning now. Moreover, the risk of further rate cuts by the central bank appears to be disappearing with CPI figures surpassing projections.

Leading banks like Westpac and ANZ no longer expect interest rates to dip into negative territory and anticipate steady cash rate over the foreseeable future. Additionally, the need for further monetary stimulus like ‘bond purchases by the central bank’ seems to be diminishing amid the current state of the NZ economy.

1. Retail Spending: Sustaining Growth

Stats NZ latest data indicates that Kiwi Land observed a solid rise of 3.5% in electronic card spending during December 2020 relative to the same time last year. Kiwis largely spent on groceries, electronics, and furniture during December, while refrained from spending on fuel and accommodation. The Christmas shopping spree gave a leg up to domestic spending in December, with people leveraging the benefit of Boxing Day sales.

A similar uptick was noted in December 2020 quarter, with actual retail spending reaching NZ$20 billion with a rise of 4.3% in Y-o-Y terms. Notably, market experts anticipated retail spending to slow down in Q4 2020 after pent-up demand from lockdowns stimulated strong consumption growth in the September quarter. However, the domestic spending continued to revive post shutdowns, exceeding expectations.

Besides Christmas period, the inability of New Zealanders to travel overseas during summer holidays appears to have given retail spending a shot in the arm last month. The upcoming scenario needs to be closely watched amid probable COVID-19 vaccination rollout in March and overseas border closures that are likely to remain in place for 2021.

1. House Prices: Setting Records

NZ’s hot housing market has been grabbing eyeballs since the onset of COVID-19 pandemic owing a rampant rise in house prices. The latest data by Real Estate Institute (REINZ) shows that median house prices set a new record in December 2020, with a Y-o-Y rise of 19.3% to NZ$749,000. The property prices surged for a fifth consecutive month in Auckland, where median house price reached NZ$1,040,000 last month.

As per REINZ, the lack of properties for sale in Kiwi Land is mounting pressure on house prices and stimulating house sales. Moreover, the buyers appear to be keen on buying properties ahead of re-introduction of LVRs and further expected price increases.

Undeniably, the property market has been instrumental in driving the nation’s recovery from the virus crisis. However, the current scenario calls for an immediate action on the part of policymakers to address unaffordability concerns of low-income households. The NZ government’s recent plan to build ~8,000 new public and transitional homes by 2024 is expected to provide some sort of cushion to rising house prices.

Bottom Line

The recent performance of these economic indicators suggests that the NZ economy has largely endured COVID-19 induced recession encountered in 2020. Consequently, optimism is growing amongst businesses and households over favourable economic conditions in the coming months.

Despite these promising indications, NZ’s low trade surplus observed in December 2020 remains a cause of concern. Overall, the current scenario demands for a sooner and successful vaccine rollout in Kiwi Land that will be crucial towards the resumption of foreign tourism and expediting overseas trade.

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