Sunday, 28 Nov 2021

Lockdown rebound slower this time as inflation bites – ASB

New Zealand’s economy is set for a slower lockdown rebound this time around, according to the latest ASB Quarterly Economic Forecast.

Despite opening borders in the first half of next year, the country will face ongoing domestic headwinds in its economic recovery, said ASB chief economist Nick Tuffley.

“Traffic lights on the horizon are cause for cautious optimism, but economic scarring from the latest extended lockdown in Auckland is likely to be felt through to the first few months of next year,” he said.

The New Zealand economy is not expected to recover as quickly as it did after the first lockdown in 2020 with GDP is not predicted to return to mid-2021 levels until mid-2022.

Despite this, business confidence remained resilient, which pointed to continued strong demand for employment and investment, he said.

“Export activity is performing well, with annual import and export goods values hitting an all-time high as at the end of September and the ASB Commodities Index at an all-time high in October.

“2022 will have its share of challenges, and probably a tough start. But the year should finish with New Zealand stronger and in a far more resilient place to cope with the ongoing pandemic,” Tuffley said.

Inflation was likely to near be 6 per cent – a 30-year high – by the end of this year and remain above 3 per cent into 2023.

ASB expects the OCR to reach 2 per cent, which will affect other interest rates.

It even sees annual house price growth, now sitting at around 30 per cent, slowing to 2.5 per cent by the end of next year.

“We’re seeing increasing evidence of momentum cooling. Lending to the sector has cooled from its prior breakneck pace,” Tuffley said.

“The pace of turnover has also eased, aided by the shift in alert levels in parts of the country. Most importantly, mortgage rates are now rising rapidly and we expect further lifts ahead.”

While inflation and higher rates will mean slower growth, there is good news for many workers with the labour market expected to stay strong and wages expected to keep rising.

The unemployment rate is 3.4 per cent, matching the pre-GFC low.

ASB sees it staying below 4 per cent for the next 18 months.

“Despite the economic disruption from the Delta outbreak, we expect the labour market to remain strong,” Tuffley said.

ASB expects wage growth to lift strongly over the coming year, reflecting the tightening
labour market conditions and the higher cost of living.

Annual wage growth is expected to be considerably higher than seen over the previous 10 years.

“Overall there’s definitely some positives in the coming months as we get more used to living with Covid,” Tuffley said.

“We should start seeing New Zealand return to a new level of normality midway through next year.”

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