Strong labour market, rising interest rates, and weather disruptions all influence "cautious but robust" start to the year
Economic activity remained “finely balanced” at the start of the year, according to new data from Infometrics.
A strong labour market, rising interest rates, and weather disruptions were all significant influences on “a cautious but still robust start to 2023,” Infometrics said.
The company’s March 2023 Quarterly Economic Monitor showed a 2.7%pa rise in provisional economic activity in the March quarter, although there were several factors that indicated “a more challenging economic outlook.”
“Our preliminary assessment of the first few months of 2023 suggests that New Zealand might have narrowly avoided a recession – so far, at least – with our initial estimate showing a small quarterly increase in economic activity after a weaker end to 2022,” said Brad Olsen (pictured above), chief executive and principal economist at Infometrics.
The rebound of international tourism continues to drive economic growth in several regional economies, including Otago, Canterbury and Auckland, Infometrics said.
“This result continues a trend from recent quarters, as tourist arrivals have recovered to two thirds of pre-pandemic levels, and guest nights have risen by 52%pa on average over the last 12 months,” Olsen said.
However, local economies have also taken a hit from Cyclone Gabrielle and other weather events.
“Economic activity in Hawke’s Bay, Tairawhiti, Northland, and Coromandel fell as horticulture production was destroyed, meat and dairy processing was disrupted, and transport infrastructure was severely damaged,” Olsen said. “Despite solid nationwide economic activity growth of 2.7%pa, Hawke’s Bay, Tairawhiti, and Northland all saw economic activity down by between 0.7% and 0.8% from a year ago.”
Despite this, Informetrics said the current resilience of the economy was “remarkable.”
“Higher-frequency indicators show a swift rebound in most parts of the economy in weather-affected economies in the March month, reinforcing the level of resilience locally as businesses, households and local agencies got stuck into recovery actions,” Olsen said.
In the wider economy, accelerating population growth has bolstered the labour supply, which, in turn, has driven solid spending activity, Infometrics reported.
“Jobs growth remains buoyant; Waikato, the top of the South Island, Canterbury, and Otago all registered filled jobs growth of 3%pa or more in the March 2023 quarter,” Olsen said. “This growth demonstrated the continued levels of hiring occurring in the economy, although intentions around future job hiring show a rising level of caution from businesses.
“Higher interest rates haven’t fully hit households yet, and economic sentiment remains subdued, laying a pathway for slowing economic momentum over 2023 as a more challenging environment emerges,” Olsen said.
Have something to say about this story? Let us know in the comments below.
