Accelerating Omicron COVID-19 outbreak presents challenges to New Zealand recovery - Quarterly Predictions, March 2022

For immediate release
NZIER Quarterly Predictions, March 2022

The acceleration in the number of COVID-19 cases across New Zealand will weigh on the economic recovery over the coming year. Despite the relaxation of restrictions for the fully vaccinated under the move to the Traffic Light system in December, there are signs of other changes in behaviour as people restrict their movements for fear of infection or having to self-isolate. This raises uncertainty over the recovery in services activity in New Zealand. The potential for widespread worker shortages due to illness or self-isolation presents a further challenge to the New Zealand economy more broadly. Offshore, the invasion of Ukraine by Russia adds to the uncertainty over the global growth outlook.

Principal Economist Christina Leung says, “The widening spread of the Omicron COVID-19 outbreak and situation in Ukraine further heightens the uncertainty over the growth outlook ahead. Although we continue to expect the resilient New Zealand economy to recover over the coming year, the additional challenges should weigh on the pace of this recovery”.

Inflation surges ahead

Christina Leung highlights the continued surge in inflation, as supply chain disruptions and labour shortages drive up costs for households and businesses. Inflation pressures have been broad-based, as more businesses are able to pass on higher costs to customers by raising prices.
“We delve into recent developments in global supply chain disruptions in our Special Feature this quarter, and discuss the impact of these disruptions on the economic recovery both abroad and here in New Zealand.”

Reserve Bank raises interest rates to rein in inflation

“The Reserve Bank has highlighted its concern about inflation expectations becoming unanchored given the sharp rise in inflation and wage expectations more recently”, says Leung.
“As a result, the central bank has indicated it will continue to increase interest rates over the coming years, at a greater pace and degree than it forecast back in November last year. We expect the impact of higher interest rates on the economy will become more apparent later this year as households face repricing of their fixed rate mortgages and rein in their discretionary spending. Overall, these developments point to a more protracted recovery in the New Zealand economy”

Quarterly Predictions is an independent review of New Zealand’s economic outlook and includes comprehensive forecasts of the economy. The full publication is available exclusively to NZIER’s members.

For further information, please contact:
Christina Leung, Principal Economist & Head of Membership Services
christina.leung@nzier.org.nz, 021 992 985