How Is New Zealand’s Economy Faring Amidst Russia-Ukraine Conflict?

Wednesday, 16 March 2022, 4:22 pm
Press Release: Kalkine

Summary

• New Zealand has been observing some improvement in its economic indicators over recent days.
• The momentum gained towards the 2021 end seems to be helping the economy stay resilient in the following months.
• Some green shoots are gleaming in the New Zealand economy despite widespread uncertainty related to the Russia-Ukraine war.

With the Russia-Ukraine conflict aggravating each passing day, the global economy seems to be caught up in precarious circumstances. The situation is becoming more worrisome for countries that are yet to revive from pandemic-induced restrictions, including New Zealand. However, despite the persisting restrictions, the New Zealand economy has been exhibiting some green shoots in recent months that demand closer attention.

New Zealand primarily saw some improvement in economic indicators towards 2021 end when the economy bounced back from lockdown restrictions. However, quickly after the year ended, Omicron-related uncertainty disrupted economic activity.

Moving forward to February and March, further disruption has been created by the Russia-Ukraine conflict, which has become a matter of global concern. These events have somehow changed the outlook for New Zealand, even as the economy developed strong footing by 2021 year-end.

Interestingly, the momentum gained over the last few months of 2021 helped the NZ economy remain steady during the uncertain months of February and March. Meanwhile, December 2021 quarter statistics reflected an improvement over the September quarter, highlighting the diminishing impacts of the pandemic towards the year-end.

In this backdrop, let us discuss some bright spots that have shaped up in the New Zealand economy over the past few months:

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Impressive employment numbers

Data released by Stats NZ reveals that the total filled jobs stood at about 2.2 million in the December 2021 quarter. The seasonally adjusted filled jobs rose 0.8% or 17,070 jobs in the December quarter compared to the September quarter. Moreover, total gross earnings rose 8.5% or NZ$11 billion over the year ended December 2021.

The December quarter results highlight a partial return of the labour market to normalcy after the September quarter saw slower economic activity due to the Delta variant outbreak. Meanwhile, some of the left-over demand from the previous quarter helped facilitate greater business growth in the last three months of 2021.

However, a lot has changed in the months following the December quarter amidst the Russia-Ukraine conflict. The upcoming GDP results for the December quarter, due this week, may not show the impact of these changes.

Easing house price growth

The Real Estate Institute of New Zealand (REINZ) recently released its monthly property report for February 2022, indicating a smaller rise in prices last month compared to prior months.

The median prices for residential property rose 13.5% annually to NZ$885,000 in February 2022. The housing prices increased at a slower annual rate in February 2022 than in January 2022. The declining housing sales contributed to this smaller increase in property prices during February 2022.

For Auckland, the annual percentage increase in housing prices was the slowest since June 2020 during February. The median residential property price in Auckland increased 8.2% annually to NZ$1.19 million.

The number of residential property sales was 32.8% down in February 2022, compared to February 2021. However, there was a 48.8% increase in sales count from January 2022. Across the regions, sales were significantly down for Auckland, where the number of properties sold decreased by 40.2% annually. The supply and demand scale of housing seems to be tipping with more property on the market.

Strong manufacturing sales

The December quarter further saw a rise in manufacturing and construction sales. Both manufacturing and construction industries observed the largest quarterly rises in sales values during the three months ended December 2021.

The latest data from Statistics NZ reveals that the manufacturing industry had the largest rise in sales values in the last quarter, generating NZ$3.5 billion worth of additional sales from the September 2021 quarter. The sales in the category reached their all-time high of NZ$33 billion, the highest since the data collection started in 1992. Once again, the easing of restrictions drove the sector’s rise in sales.

Within the sector, metal product manufacturing recorded the highest percentage increase of 32%, while non-metallic product manufacturing saw sales rising by 30% quarterly. The construction industry witnessed the largest industry percentage increase of 16% from the September 2021 quarter, reflecting a rise of NZ$3 billion in sales. The growth was majorly driven by burgeoning demand for houses and the related boom seen in the residential construction segment.

Overall, these improving statistics indicate that the New Zealand economy is gradually inching closer to its pre-pandemic self. With some minor disruptions making the path challenging, the country might need more time to fully recover. With inflationary concerns continuing to haunt consumers and businesses, aggressive rate tightening might be the central bank’s only resolve.

Alternatively, some economists suggest that the economy is largely expected to grow despite the current headwinds. However, the total impact of changing global events and unfolding inflation will only be realised as the year progresses.

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