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NZ economy entering 2021 as fit as a fiddle - research

By Shannon Williams
Thu 31 Dec 2020
FYI, this story is more than a year old

The New Zealand economy is entering 2021 "fit as a fiddle", according to Kalkine.

With pandemic turning the world upside down, the NZ economy endured its first recession since the Global Financial Crisis in 2020. While the COVID-induced recession initially derailed the nation’s economic recovery, New Zealand has managed to rebound sharply from its biggest economic slump, it says.

Consequently, the NZ economy is all set to make an entry into 2021 on a strong footing.

The Kiwi government recently released ‘half-year fiscal and economic update’ for 2020, suggesting that the economic and fiscal impact of the COVID-19 pandemic will be less severe than initially feared. The government believes that the economy has weathered the virus storm better than expected despite a GDP contraction of 12.2 per cent in the June quarter.

"The recent performance of NZ economic indicators is providing strong evidence of the nation’s terrific recovery from the COVID-19 crisis," says Kalkine.

With that said, let us quickly scroll through some bright spots gleaming in the economy:

1. Economic Growth Bounces Back

The latest GDP figures from Stats NZ suggests that the Kiwi economy is demonstrating V-shaped recovery from the COVID-19 recession. Following a significant contraction of GDP in the June quarter, NZ’s GDP surged by 14 per cent in the September quarter 2020.

The exclusive COVID-19 elimination strategy coupled with policymakers’ unprecedented support appear to have underpinned this solid economic recovery. Besides, the resurgence in household spending post lockdowns delivered a much-needed push to the economic revival.

2. Business Confidence Picking Up Steam

NZ’s business confidence levels are soaring back to life, with businesses anticipating better days ahead. ANZ’s latest Business Outlook indicates that the nation’s headline business confidence surged to multi-year highs in December 2020, reaching at 9.4 per cent.

The business confidence leapt a whopping 16 points in December relative to November. Interestingly, the headline business confidence was back in black for the first time since August 2017.

However, cost expectations also increased 6 points to a net 56.8 per cent of respondents reporting higher costs. ANZ warns that mortgage rates might not remain at rock-bottom levels in case inflation pressures continue to mount.

3. Consumer Confidence Rising from the Ashes

New Zealanders appear to be regaining festive spirit as the year 2020 approaches the end. The recently released consumer confidence data testifies the same.

The Westpac McDermott Miller Consumer Confidence Index surged by 10.9 points to 106 points in December, with Kiwi consumer confidence marking a sharp turnaround. Growing optimism around the economic outlook has been bolstering household sentiment in New Zealand.

New Zealanders are feeling more upbeat due to positive developments on COVID-19 vaccines and a considerable revival in domestic activity. Besides, the impending holiday season is fostering spending appetites, with people spending more on entertainment and dining out.

4. Retail Spending Continues to Escalate

Black Friday, Singles Day and Cyber Monday shopping festivals drove Kiwi Land’s retail spending to all-time highs in November 2020. Besides, the year-end festivities are expected to give the retail scenario a further push.

Stats NZ latest data indicates that the nation’s total retail spending increased by 1.4 per cent in November 2020 relative to November 2019. New Zealanders primarily spent on durable goods like laptops and cell phones during the month amid strong festive promotions.

Significantly, Kiwis reverted to online shopping in November instead of ferociously running around shopping malls. NZ Post’s recent research demonstrated that Kiwis spent NZ$585 million online last month, out of which NZ$115 million was spent in Cyber Monday and Black Friday sales.

5. Property Market Defying Expectations

NZ property market has been dancing to its own tune since June 2020, brushing aside the coronavirus risks. The market has covered an unprecedented journey in terms of property prices, with median house prices hitting new highs in November 2020.

Latest statistics from the Real Estate Institute of New Zealand (REINZ) show that median house prices across Kiwi Land rose by 18.5 per cent Y-o-Y to NZ$749,000 in November. Eleven regions across NZ saw median house prices hitting new record highs during the month.

Notably, November was also an incredible month for property sales. The total number of residential properties sold rose by ~30 per cent in November 2020 to 9,885 from 7,627 in November 2019. Notably, investors remained active in the market to reap the benefits of low-interest rates and secure properties before the re-introduction of LVRs.

"Even though promising signs are popping up in recent economic data, soaring government debt and rising inflation pressure need closer attention," Kalkine says.

"Besides, closed international borders weighing heavily on exports and tourism continues to remain a subject of concern."

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