The announcement of new COVID-19 community cases on Valentine’s Day highlighted how quickly things can change for the New Zealand economy. The swift move of Auckland into Alert Level 3 was an unwelcome development for many services industry firms which had started to get activity back on track. Prior to this, activity in New Zealand was largely returning to normal, barring the effects of continued border restrictions which are having a severe negative impact on tourism-related industries.
Principal Economist Christina Leung says “whilst disruptive, the brevity of Alert Level 3 for Auckland and Alert Level 2 for the rest of the country means that the V-shaped recovery for New Zealand should remain. Construction demand is growing strongly after weakness over the first half of 2020, and we expect it will continue to lead the recovery over the coming years”.
The pipeline of construction is growing in response to the significant amount of stimulus injected into the economy by the Government and the Reserve Bank. Increased Government spending and lower interest rates have also supported a recovery in consumer confidence, with retail spending picking up as New Zealand moved down the alert levels.
NZIER forecasts annual average GDP growth to pick up to over 6 percent by the end of this year, before moderating to average around 3 percent in the subsequent years.
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.