New Zealand Economy Shows Signs Of Recovery; Should Kiwis Rejoice?

Tuesday, 7 June 2022, 3:10 pm
Article: Kalkine

Even as international pressures persist, the New Zealand economy is slowly returning to its pre-pandemic self.

• The latest data by Stats NZ shows that the country’s property market and international trade have been abuzz with activity.
• Recessionary fears loom as global supply chain disruptions raise concerns for the New Zealand economy.

As New Zealand enters the middle of 2022, there is a stark contrast in its economic state compared to a year ago. Rising virus cases and pandemic-induced worries, which were prevalent in the country last year, are no longer the primary concern in New Zealand. In fact, policymakers have shifted their priorities over the last few months, with inflationary pressures taking centre stage.

New Zealand seems to be standing in a dichotomous situation, with the economy observing mixed signals of recession and recovery. An inflation fuelled environment has presented a peculiar challenge for Kiwi policymakers. At the same time, a reopening economy and restriction-free environment are offering a more flexible space for businesses to operate.

These factors have become a recurring feature of the post-pandemic state of most nations. Some aspects have provided strength to the New Zealand economy, while others are constantly looming as a threat to complete recovery. International headwinds have dampened confidence with a potential blow expected on consumer demand. However, the latest data released by Stats NZ seem to be offering some relief in this uncertain environment.

Against this backdrop, let us discuss a few factors that are invigorating positivity in the present climate.

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Rising building activity

Building activity took off in New Zealand in the first three months of 2022, at a time when Omicron-related fears dominated individuals’ minds. As per Stats NZ, the volume of building activity rose 3.2% in the March 2022 quarter compared to the December 2021 quarter. In fact, residential building activity rose by 3.5% compared to non-residential activity, which only rose 2.7% during the quarter.

The factories and industrial buildings segment surged 48% to NZ$1.3 billion, driving the gains in non-residential building activity. There was also a rise in other categories, including educational buildings, hospitals, nursing homes and health buildings. All these categories belong to the industries that have benefitted through a rebound from the lockdown-related halts in economic activity.

At the same time, the total building value also rose 20% from the March 2021 quarter. The highest gains in the value of total building work were seen in Auckland among all states. This also reflects the improving property market conditions that were seen earlier this year. However, housing supply pressures have eased since then.

Recovery in imports and exports

International trade has bounced back as the New Zealand economy reopened its borders. According to Stats NZ, total exports of goods and services rose to NZ$19.8 billion in the March 2022 quarter, from NZ$17.3 billion in the March 2021 quarter. Imports were also higher, reaching NZ$23.6 billion in the March 2022 quarter from NZ$18.7 billion in March 2021 quarter.

Amidst improving trade numbers, Prime Minister Jacinda Ardern is on track to promote the US’ entrance into the Indo-Pacific region. PM Ardern has been in talks with US President Joe Biden about Washington’s efforts to boost engagement in the region.

She believes that the US engagement in the region is crucial for economic purposes and for strengthening their relationship. As the global economy enters an uncertain territory, large economies can help provide stability through their active leadership. The US is one such economy with strategic importance for New Zealand.

Card spending continues to surge

Price pressures often lead to dampened demand for goods and services. However, New Zealand observed a rise in consumer spending despite inflationary concerns, underlining the stability of its economy. Stats NZ reported that debit and credit card spending rose by NZ$551 million in April, marking a 7% monthly rise.

In April, the country observed high spending on consumables, durables, hospitality, and apparel. Gains in the consumables category, including groceries and liquor, majorly led to a rise in card spending.

These economic parameters present a buoyant outlook for the New Zealand economy or, at the very least, cement the nation’s return to normalcy after a prolonged period of lockdowns. However, these positive reinforcements might not be enough to protect the nation against international pressures. Rising commodity prices, a global supply shortage of goods and increasing geopolitical tensions are some of the international challenges facing the country’s economy.

Meanwhile, things could go south on the domestic front as rising interest rates could make borrowing difficult for households. Besides, interest rate hikes could impact the housing market, which is already facing heightened volatility amidst rapidly falling prices.

Overall, experts fear that painfully high costs can give way to a free-fall in consumer and business confidence. Over the next few months, a lot rides on the policy action taken by the government and the central bank.

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