Businesses ‘feeling more positive’
A strong rebound in economic activity is being predicted as the economy responds to stimulus measures from the government and Reserve Bank.
The New Zealand Institute of Economic Research (NZIER) forecasts annual average GDP growth to increase to about five per cent by early 2022, before moderating to average about three per cent in the subsequent years.
Its latest Quarterly Predictions report says the stimulus supports a V-shaped recovery for the economy.
Christina Leung, principal economist, adds that a recovery in the household sector and increased demand for food commodity exports are expected drive a rebound in economic growth over the coming year.
The report highlights how record low mortgage rates have fuelled housing market activity, with retail spending picking up back to pre-Covid levels as people furnish their new homes.
However, the NZIER cautions that this increase does not offset the decline in spending suffered during the lockdown periods, and many businesses still face revenue losses for the 2020 year.
“Nonetheless, businesses are feeling more positive,” notes Leung, pictured. “Buoyed by improved demand, businesses are looking to hire again, and once again starting to see a re-emergence of labour shortages.
“There are also signs of a turnaround in investment intentions, particularly in regard to plant and machinery.
“However, with banks more cautious about lending this will limit the extent of the rebound in investment in some areas such as commercial property.”
The NZIER predicts border restrictions to remain in place for much of 2021 as other countries continue to grapple with the Covid-19 pandemic.
While this will have a “severe impact” on services exports, primarily tourism and international education, it does mean Kiwis will be unable to head overseas for holidays and may potentially spend their money domestically instead.
Leung adds the strength in the housing market has reduced the likelihood the Reserve Bank will cut the official cash rate (OCR) further.
“On balance, given the Reserve Bank’s ‘least regrets’ approach in bringing interest rates to extremely low levels to encourage spending and investment, we continue to expect it will introduce a negative OCR around mid-2021,” she says.
