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The economy is expected to slip back into recession early next year, as delayed job losses, falling consumer spending and the absence of international tourists affect growth.
Auckland’s normally crowded Queen Street was empty at closing.
Photo: RNZ / Jordan Bond
The chief forecaster at economic consultancy Infometrics, Gareth Kiernan, said the economy had fared better than expected emerging from the first impact of Covid-19, but was facing a crisis early next year.
“The loss of international visitors will be deeply felt by tour operators during the normally busy summer month, while retailers also expect the spending momentum to continue into Christmas,” he said.
“Other companies are also likely to reassess their staffing needs heading into the new year if there is any weakness in demand conditions.”
Infometrics was forecasting 186,000 fewer jobs for the middle of next year, along with a drop in hours worked and weaker earnings growth, though it might not be too bad due to stronger-than-expected economic activity since closures were relaxed.
“But if the unemployment rate rises above 8 percent next year, Infometrics expects a contraction of more than 3 percent in both private consumer spending and GDP in the first nine months of 2021.”
The economy is in a technical recession after contracting in the first half of the year.
However, it is expected to show a solid rebound in the three months ending in September.
Kiernan said the loss of international visitors would be felt through the summer, while retailers would expect consumer spending to hit Christmas.
“Other companies are also likely to reassess their staffing needs heading into the new year if there is any weakness in demand conditions.”
Infometrics expected the housing market to remain bullish with demand driven by a surge in returning New Zealanders and historically low interest rates, although home price growth was expected to slow over the next year.
“The renewed rises in house prices have been a side effect of the Reserve Bank’s efforts to stimulate the economy,” he said.
“To date, job losses have been concentrated among the segments of the population that are least likely to be homeowners.”
He said the Reserve Bank was unlikely to react to the strong housing market and worsening affordability by reinstating restrictions on bank lending, even though rising prices were exacerbating the uneven effects of Covid-19 and ” amplifying inequality problems within New Zealand. “
