New Zealand's in for a double-dip recession in 2021, according to Infometrics, which says potential delayed job losses will "punch a hole in consumer spending and drag economic activity lower".
The economics consultancy group says despite Aotearoa rebounding well from the nationwide lockdown earlier year, "the New Zealand economy remains vulnerable" due to continued border closures and a possible drop soon in consumer spending.
Back in September, Statistics New Zealand revealed GDP had fallen in the June quarter by a record 12.2 percent. That followed a 1.6 percent drop in the March quarter. With two consecutive quarters of negative GDP growth, New Zealand was officially said to be in a recession.
A double-dip recession, as Infometrics is forecasting, is when a recession is followed by a brief recovery only to be followed by another recession.
Economists have previously suggested our recovery will begin in the September quarter.
For most of that period, the country was out of lockdown, thousands of businesses were supported by the Government's extended wage subsidy scheme and Kiwis were able to freely travel domestically to support struggling tourism sites. There was, however, also the COVID-19 outbreak in Auckland in mid-August, forcing the city into lockdown and adding new restrictions nationwide.
Despite the entire country now being back at alert level 1, the economy isn't out of the woods yet. Our borders remain closed to most foreigners, meaning companies reliant on international tourism continue to be challenged.
While some support remains available, applications for the Government's wage subsidy schemes have closed. During the roughly 22 weeks those were available to businesses, more than $14 billion was paid out.
"The next few months will be crunch time for the New Zealand economy," Infometrics chief forecaster Gareth Kiernan says.
"The loss of international visitors will be keenly felt by tourism operators during the normally busy summer month, while retailers will also be hoping that spending momentum continues into Christmas. Other businesses are also likely to reassess their staffing requirements heading into the new year if there is any softness in demand conditions."
Due to countries' inability to get a handle on the pandemic, when our borders will open to foreign tourists remains unclear. Treasury said in September it believed restrictions will be lifted in January 2022, but the current Government hopes it will be sooner.
An Australia-New Zealand travel bubble - where travellers don't have to quarantine - could open by Christmas. New Zealanders will soon be able to visit parts of Australia without isolating, but the same can't be said for Aussies wanting to come here without quarantine. That won't occur until the Government considers it safe.
Kiernan says, ultimately, the question is whether New Zealand's economy will continue regaining momentum as it did after the first lockdown.
"Risks remain to our outlook, particularly due to the precarious position of the global economy, but our domestic performance means we've weathered the immediate storm as well as could be expected."
Unemployment
Infometrics says household spending may be constrained in 2021 by a rise in unemployment, a decline in the number of hours Kiwis are working, and weaker earning growth.
So far, official statistics haven't revealed a massive hike in unemployment.
The June quarter figures released in August instead actually showed a drop of 0.2 percent to 4 percent. But due to how the unemployment rate is measured, this doesn't entirely capture job losses in the quarter.
"With the country in COVID-19 lockdown when the quarter began, fewer people who did not have a job were actively seeking work. People who were not actively seeking work were not counted as unemployed, resulting in a fall in the unemployment rate. However, many of these people were captured as underutilised," StatsNZ said at the time.
New Zealand's underutilisation rate jumped by a record 10.4 percent to 12 percent and the 'hours worked' metric also decreased.
The unemployment rate is, however, still expected to jump.
Infometrics is expecting an overall decline in employment of 186,000 jobs by June 2021 compared to pre-pandemic levels, which it says compares favourably to fears during the April lockdown of 300,000 job losses. It attributes the wage subsidy and other Government support schemes as mitigating the pandemic's effect on the economy and job numbers.
"It is possible that job losses of this magnitude are not guaranteed if the economy maintains the momentum of the last few months.
"But if the unemployment rate does climb above 8 percent next year, Infometrics expects a contraction of more than 3 percent in both private consumption spending and GDP in the first nine months of 2021."
The Pre-Election Economic and Fiscal Update (PREFU) in September forecast unemployment would peak at 7.8 percent in the next two years, although that is down on the 9.8 percent predicted in May's Budget.
Housing
Despite the severe economic impacts seen so far as a result of the pandemic, New Zealand's housing market continues to go from strength to strength.
That was illustrated this week by the release of data from the Real Estate Institue of New Zealand showing more properties were sold in September than in any month since March 2017. The median house price also hit a new national record.
The demand has largely been driven by record low interest rates, confidence those rates aren't going to be jumping anytime soon, and Kiwis returning to New Zealand to escape COVID-19's continued wrath overseas.
But Infometrics says the influx of Kiwis is slowing, meaning house price growth will also slow in 2021. A decline in property prices is unlikely, however.
"Renewed house price rises have been a side-effect of the Reserve Bank’s efforts to stimulate the economy," said Kiernan.
