Bank said we’ve “yet to feel the full wrath” of closed borders
New figures have shown a 1% drop in economic activity for the final quarter of 2020, and Kiwibank chief economist Jarrod Kerr said we are likely to see more contraction in the first quarter of 2021.
Kerr likened New Zealand’s recovery to a plane conducting a stalled nosedive recovery manoeuvre - a significant plummet in the second quarter of 2020, followed by a sharp pull upwards of 14% in September. Now, it is once again hitting some turbulence.
“Three of the plane’s four engines are humming,” Kerr said.
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“It’s the fourth engine that exports services, such as tourism and education, that remains without power.”
Kerr said New Zealand is truly seeing the impact of its long-term border closure now, as summer should have been peak season for both students and international tourists. He said we have “yet to feel the full wrath of the closed borders,” and can expect to weather some more near-term turbulence.
However, he believes the “rampant” housing market should fuel the construction sector, and said its lacklustre performance in December “should not be read as a set-back.”
“Overall, we’re hoping to see travel bubbles emerge, although we’re not expecting our drawbridge to be let down completely until 2022, at the earliest,” Kerr continued.
“The stark unevenness in the recovery at the industry level will likely continue in the quarters to follow. We are expecting growth to be modest over 2021, and despite the rebound we’re forecasting over this year, economic activity is not expected to surpass the pre-covid peak until early 2022.”
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“When it comes to interest rates, it’s reasonably clear that they are going to stay where they are for at least another year,” he added.
“All going well, we could see rate rises from the end of next year. We’ve pencilled in the first rate rise from November - though things are still unpredictable and that could also happen in August, or it could be in 2023. But we’re not anticipating any rate rises within this next year.”
