Warning fresh recession looms
Economists are warning another recession is looming for New Zealand at the same time vehicle sales are “coming off their highs” of the last few months.
A new report from Westpac predicts New Zealand’s gross domestic product (GDP) will fall to 0.7 per cent over the six months to March.
If the forecast is correct it would technically be a recession, which is defined as two consecutive quarters of drops in GDP.
New Zealand was plunged into a recession during lockdown in 2020 but rebounded in the September quarter of that year.
Westpac’s team of experts predict the closed borders and a summer without international tourists will deliver another recession early this year.
“We estimate that the absence of overseas tourists cost the country around two per cent of GDP in the September quarter, including the second-round effects on domestic spending and production,” the economic overview report says. “But that will rise to around six per cent by the March quarter, when tourism normally peaks.
“This means that some of the upcoming data, once seasonally adjusted, will show the economy slowing or even going backwards. We’re expecting overall GDP to shrink by 0.7 per cent over the December and March quarters combined.”
The report says economic activity generally remains up on a year ago despite a loss of some of the momentum seen at the end of 2020.
“Consumer and business confidence have lifted, job advertisements are rising, the housing market is booming, and housing construction continues to reach new highs,” it notes.
“But traffic volumes, vehicle sales and spending on electronic cards have been coming off their highs in the last few months.”
Chief economist Dominick Stephens, pictured, says the economy has weathered the Covid-19 pandemic better than expected and providing the snap lockdown for Auckland is brief it is unlikely to alter the recovery track.
“When people are temporarily barred from certain economic activities, they often divert their spending to other things or undertake the same spending at a later date,” he adds.
“Of course, this doesn’t detract from the fact that some individual businesses will be hit hard by even a temporary lockdown.”
He says the unemployment rate is lower than expected and data indicates the labour market has reached a turning point. “We are forecasting that unemployment will be flat to falling from here,” explains Stephens.
With international tourists expected to be largely absent through most of 2021, domestic spending and the housing market look set to be the country’s main economic drivers.
The Westpac report forecasts a 17 per cent rise increase in house prices this year and expect the official cash rate to stay on hold at 0.25 per cent until 2024.
To read the full report, click here.
