All eyes on Christmas as economist predicts 'double-dip' downturn in early 2021

An economist says many Kiwis in business will be looking to Christmas as a sign of the state of New Zealand's economy, but warns a "double-dip recession" could be on the cards for early 2021.

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Gareth Kiernan of Infometrics says the full extent of New Zealand’s economic downturn is yet to be realised. Source: Breakfast

Speaking to Breakfast this morning, Infometrics chief forecaster Gareth Kiernan said while many New Zealand business had largely done well throughout Covid-19, the worst could be yet to come.

He said there is something of a two-speed economy taking place - some are strongly affected, especially those in low-paying retail or tourism jobs, while others have seen little change from before Covid.

"Looking forward into 2021, we think the economy is going to start contracting again, because there are more job losses coming through," Kiernan said.

"The tourism sector is one of those we think still hasn't seen the full effects, and there's been a lot of government support rolling around for the economy, with the likes of the wage subsidy."

Kiernan said while confidence numbers had been "remarkably good" throughout 2020, and that there was a spending "catch up" following lockdown, there is now some weakness coming through is those confidence numbers.

"When we look forward over the next two to three months, retailers will be watching to see what it's like for Christmas, of course that's normally one of their busiest times of year, and if there's any real signs of softness coming through, that will be a real concern for the likes of the retail sector."

Tourism was still at risk, with the bulk of New Zealand's international visitors usually coming here from December through to March.

The hit to revenue from losing tourists in winter was about $300 million, Kiernan said, while about $1.5 billion in revenue would usually be expected in a typical December.

In 2021, Kiernan said it was more likely that job losses will become "a bit more spread throughout the economy" and rising house prices are making things more difficult for those on lower pay rates.

"They're also struggling, of course, because the housing market is going along great guns, and if you own a property that's all good, but if you're a lower-paid worker, a retail worker for example, you probably don't own your property and you're being priced out of that too."

In terms of house prices, Kiernan said it was likely that growth would slow somewhat with the influx of returning Kiwis now starting to wane, but said the Reserve Bank lowering interest rates was having the opposite effect and pushing prices higher.

Six months ago, he was forecasting house prices falling "ten or eleven per cent", but that has now changed and "they're just not going to happen now.

"The Reserve Bank is lowering interest rates, there's further cuts to come, and they've been very clear that they don't really care about house prices rising, in fact they see it as potentially good to try to keep the economy going - pity about the inequality issues though."

*This story previously incorrectly said "double-digit" instead of the correct term "double-dip" Infometrics is not predicting a ‘double digit’ recession.