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The measures that helped New Zealand resist COVID, including closing its borders to tourism, are now hurting its economy.
New Zealand, a star player in the battle against Covid-19, faces the prospect of a double-dip recession as the impact of its closed border on the vital tourism industry hits home.
The economy contracted 1.0% in the last three months of 2020, data showed Thursday in Wellington, with some economists suggesting it will contract further in the current quarter. The wobble follows a V-shaped recovery from a first-half slump when the nation successfully eliminated community transmission of the virus.
Now, some of the strict restrictions New Zealand employed to combat the pandemic, which propelled it to the top of Bloomberg’s global Covid resilience rankings, are hampering growth. Tourism, once the country’s largest source of foreign exchange, is recovering from the lack of foreign visitors. While a travel corridor with Australia is being planned, there is little prospect that the border will reopen more widely this year.
[Bloomberg]
The sustainability of New Zealand’s recovery had been questioned in light of the border closure, minor Covid outbreaks in Auckland’s largest city, and slow distribution of vaccines. Six of 18 economists surveyed by Bloomberg forecast a contraction in the fourth quarter, while the Reserve Bank last month projected zero growth, saying current uncertainty is expected to limit business investment and household spending.
“There will continue to be bumps in the recovery as long as you continue to have Covid-19,” said Diana Mousina, senior economist at AMP Capital Investors Ltd. in Sydney. “We have to wait probably another year for the vaccine to roll out to stop seeing some of this up and down or zig-zag movement.”
What Bloomberg Economics Says …
“The unexpected contraction in Q4 GDP highlights a dilemma that economies around the world will face in 2021: what comes after the post-lockdown rebound has run its course? For this small economy, the elimination of the domestic virus and the substantive stimulus, both monetary and fiscal, will probably not be enough to end an economic pause after the rebound until the rollout of global vaccination allows the reopening of international borders. ” .
– James McIntyre, Economist
The New Zealand dollar ignored the negative impression of GDP as traders focused on the still positive outlook. The currency was little changed to 72.45 cents at 1.03pm in Wellington.
After a 13.9% increase in the third quarter, the economy is only 0.9% smaller than it was before the start of the pandemic.
“The mild technical recession looks more like turbulence after a massive aerial maneuver,” said Jarrod Kerr, chief economist at Kiwibank Ltd. in Auckland. “It is important to look ahead. Vaccine launches and travel bubble talks with Australia should support strong growth through 2022. “
The central bank has cut interest rates and embarked on term loan and quantitative easing programs to lower borrowing costs. That put a rocket under the housing market, with prices soaring to new records. The government is preparing a package of measures to curb speculators, which it is expected to announce next week.
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