Will 2022 Bring Back Normalcy In The New Zealand Economy?

Tuesday, 1 March 2022, 6:16 pm
Opinion: Kalkine

Highlights

• New Zealand is currently facing global headwinds in the form of pandemic-induced lockdowns and supply chain disruptions.
• The escalating Russia-Ukraine conflict has aggravated inflationary concerns.
• Lack of skilled labour and highly restrictive government policies seem to be making labour market conditions tighter.

The last two years have seen global-level developments overpowering domestic forces, impacting the world economy. New Zealand was no stranger to these global headwinds that surfaced in the form of pandemic-induced lockdowns and supply chain disruptions. With a gradual recovery on the way, New Zealand seems to be cautiously emerging out of the pandemic-related difficulties. However, the question remains when the economy will finally return to its typical self.

The pandemic sent shockwaves across different sectors, including healthcare, travel, entertainment, and consumer goods. Even as the medical adversity attached to the pandemic has dampened in intensity, there is a lingering fear of future virus strains. For now, the relatively milder Omicron virus has allowed the country to function in a slightly smoother manner, with businesses springing back in action.

Nevertheless, the streak of challenging global forces continues to spark concerns. Meanwhile, the domestic restrictions seem to be shaping up turbulent times ahead for the masses, who have been locked inside their homes for a long time.

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On this note, let us discuss some challenges that need to be addressed to bring back normalcy in the New Zealand economy.

The Russia-Ukraine conflict

The Russia-Ukraine conflict has escalated quickly into one of the world’s most dangerous geopolitical concerns. It is no surprise that the world is worried about trade disruptions due to the ongoing political dispute, which can dwindle the world economy. As one of the largest energy exporters of the world, Russia’s actions can impact the economic soundness of many nations.

New Zealand is no different in facing concerns surrounding the Ukraine-Russia conflict. The country sources building products from Europe, which are already expensive due to high freight costs. If the crisis continues to aggravate, such imports may take a severe hit.

Meanwhile, one cannot neglect that such products are essential to meet the undergoing construction in the country to control sky-high property prices. If imports become expensive, businesses may have to charge higher prices from consumers, worsening affordability concerns.

Additionally, the ongoing war is expected to result in a massive rise in gas and energy prices, which may directly affect businesses’ revenue margins. This will mean higher inflation for the economy. These factors may also seep into the stock market if not controlled.

Labour shortages

The country has also been facing a shortage of skilled labour across industries as an ill-effect of the pandemic and the related border closures. As international borders remained shut, the country was forced to rely on domestic labour to fulfil all available positions. Meanwhile, many industries that require the physical presence of labour to function seamlessly were forced to remain shut due to rising virus infections.

One can say that the absence of immigrants has left a gaping hole in the skilled workforce’ segment. As the country inches closer to the border reopening, experts predict that this widening gap in the demand-supply situation for skilled workers may gradually lessen.

Most importantly, the tourism sector, which took a major hit during the pandemic, may finally get some refurbishing as soon as the border reopens. Alongside border reopening, favourable immigration policies and schemes may also have to be implemented to incentivise travel into New Zealand. Till then, Kiwis can expect a sluggish recovery to linger in the economy.

Set of restrictions

New Zealanders have faced some of the longest and harshest COVID-19 related restrictions among all countries. Given these restrictions, public outcry has been evident in the country, with multiple large-scale protests and rallies taking centre stage to control virus spread.

Ongoing restrictions have interfered with business activity and prevented several job seekers from finding a new job. Individuals are thus, seeking answers on why the country’s economic freedom ranks below citizens’ protection from a relatively safer strain of virus, even as vaccinations are available. Thus, citizens have been continuously demanding a return to normal conditions.

In a nutshell, New Zealand faces a barrage of new challenges that can derail the country’s economy if left unaddressed. A mix of these global and domestic forces are transcending into an unending spell of troubled waters for New Zealand. With the possibility of a war outbreak, lack of enough workers and weakening faith of Kiwis in the government’s restrictive policies, the NZ authorities may need to take swift action soon to bring the economy back on track.

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