Economic Indicators Show NZ Economy Not Close To Deep Downturn

Tuesday, 13 September 2022, 5:38 pm
Article: Kalkine

Highlights

• The global economy was reeling under a high unemployment rate during the economic downturn in the late 2000s
• In the present scene, joblessness in New Zealand is at record low levels
• Wage growth is also said to be defying negative sentiments

Is the New Zealand economy under stress? Is a recession knocking on the door, and can such a downturn trouble kiwis over the coming years?

A slowdown is being feared by many. Investors, in particular, seem to be less inclined toward parking their money in volatile assets like stocks. Generally, households tend to realise why saving money for unforeseen times is crucial when prices rise and purchasing power is declining.

But the question is whether New Zealand, or the entire world for that matter, is set for another deep economic shock like the financial crisis of the late 2000s. Joblessness usually spikes during recessionary phases. Is that the case right now, or is wage growth not keeping up with inflationary pressures?

While many economists and central banks seem worried about fast-approaching economic stress, some indicators suggest otherwise.

In New Zealand, certain markers are a little confusing. Some key numbers, however, indicate that the economy is not likely to be heading toward any gloomy phase. On the contrary, there appears to be hope that prices would eventually come down, and economic activity would not lose heat.

Financial crisis of late 2000s

In February 2012, the US Bureau of Labor Statistics (BLS) released a report highlighting the state of unemployment during the financial crisis of 2007-2009. It identified high joblessness as one of the biggest indicators of recession, which is a likely outcome considering businesses tend to hire fewer workers when the economic activity is under pressure and demand for goods and services is subdued.

The BLS report states that unemployment in the US was 5% in December 2007. The figure doubled by the end of the recession in 2009. According to the report, such high national unemployment was last seen in the US early 1980s.

As far as New Zealand is concerned, the situation of unemployment before and after the crisis was no different. According to an April 2012 report published by national data agency Stats NZ, the unemployment rate in the country was 3.8% in the December quarter of 2007. By 2009, the figure rose to 6.8% — the steepest point joblessness had reached in a decade in New Zealand — when the recession hit the economy.

The report, however, noted that even during the course of a devastating downturn that inflicted most economies, New Zealand could post better numbers as compared to other OECD member nations.

The position today

Concerns about an impending recession are rising in developing as well as developed economies around the world. Wall Street, for one, is manifesting extreme volatility, with even big names like Apple and Microsoft having lost value.

In New Zealand, too, some data points toward a dull phase. The country’s benchmark stock market index, S&P NZX 50, has lost significant value this year, mirroring the losses suffered by its counterparts like the ASX 200. Separately, New Zealand’s consumer confidence index, which reflects its retail spending patterns, has remained subdued through this year.

However, some numbers point toward a hot economy buzzing with record low unemployment rates and high wage inflation in the country. Some experts note that the economy has not yet manifested signs of a deep downturn, which could be why the Reserve Bank of New Zealand (RBNZ) is raising interest rates to deter borrowing and trim demand and consumption.

Many other advanced economies seem to be experiencing strong job markets, with companies in the US, Australia, etc. struggling to find workers amid the rising global worker shortage.

Also read: Inflation higher in NZ than Australia: Check out responses of central banks

Housing market may have a cue

Last year, New Zealand’s housing market became the talk of the town in the wake of skyrocketing prices of housing assets. But as 2022 rolled in, the real estate market was reeling from a deep correction.

Housing asset prices have reportedly fallen for the first time in many years in the country, which could be indicating a dull sentiment among buyers who were leading the frenzy even when prices were at record high levels.

Such a deep correction, which has left many new homebuyers in a lurch, had not been widely anticipated. This could indicate that market watchers might not be getting the current economic landscape right either.

However, New Zealand’s economy could survive current uncertainties unscathed, particularly amid low unemployment, rising wages, and the RBNZ deciding on steep interest rate hikes.

Keeping in view the macroeconomic conditions that prevailed during the 2007-2009 financial crisis, it may be said that New Zealand is seemingly yet to show clear signs of a looming recession.

Additionally, a recent report noted that retail card spending in the country rose by close to 1% in August 2022 compared to last month. This may suggest that demand in the economy is yet to suffer any considerable blow. Notably, economic slowdowns are fueled by a hit to demand and consumption.

The coming months are likely to clear the clouds. But as of now, if indicators are to be considered, New Zealand doesn’t seem to be under the threat of a looming deep downturn.

Also read: Is NZ’s Budget 2022 going to be a `Well-Being’ one?

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