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NZ economy set to end year only 3% down, 'phenomenal' result compared to most other nations

New Zealand’s economy amid the Covid-19 pandemic is holding up better than many developed countries thanks to its speedy exit from lockdown and people’s large spending, according to ASB. 

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The economy is set to end the year down three per cent, a “phenomenal” result compared to other countries, ASB says. Source: 1 NEWS

ASB chief economist Nick Tuffley said the country is forecast to finish the year down only three per cent compared to 2019. In March, ASB predicted the economy would be down six or seven per cent. 

“Fear of losing jobs has quickly given way to fear of missing out on a bargain or some fun, and the sheer degree of support the economy has received means the country has fared far better than previously expected,” Tuffley said.

“Given the events of 2020 and the impact of Covid, to finish the year down only three per cent from 2019 is phenomenal. 

“However, we need to remember that much of that drop is concentrated in the tourism sector, which continues to be held back by the border closure.” 

In comparison, the EU is expected to decline seven per cent this year, and the UK is forecast to be down 11 per cent. 

Tuffley said he also no longer expected the Official Cash Rate to go into negative territory off the back of a “strong” response to low interest rates and the roll out of the Reserve Bank’s Funding for Lending Programme, which would see it provide loans directly to banks to give it a steady source of money to continue lending. 

He said New Zealand’s recovery looks similar to Australia’s, with both countries benefiting from China’s rebound. Exports of dairy, meat, fruit and wine were all “well above” last year. 

Tuffley warned growth prospects in 2021 wouldn’t be as rosy.

ASB is expecting the unemployment rate to peak at 6.5 per cent in mid-2021. But, Tuffley said the labour market still fared better than expected, and weekly jobless claims appeared to have stabilised in October and November this year.

He predicted a “muted” 2021 for the New Zealand economy, as the borders look to stay closed. 

Weak global growth could also limit the country’s export performance, he said. 

“Australia’s 2021 recovery is likely to be stronger than New Zealand’s given that New Zealand’s economy will still be held back by border constraints,” he said.

“Vaccine distribution at a level where border restrictions can be relaxed will still be some time away.

"So, in our view, strong New Zealand and global recoveries are a story for some time in 2022.”