But Omicron, rising interest rates create uncertainty
The New Zealand economy recorded 3.0% growth in the fourth quarter, despite interest rates, Omicron cases rising, and the war in Ukraine.
The new study by Kiwi Economics shows the welcome bounce back in the economy came following a 3.6% decline in the third quarter.
Kiwi Economics chief economist Jarrod Kerr said there was uncertainty in the market at present.
“A lot has happened since the start of the year,” Kerr said. “The Omicron outbreak has dominated and hit confidence hard. The economic consequences of the Omicron outbreak are yet to play out, but it has caused a spike in absenteeism and NZ’s labour market is already tight with businesses struggling to find workers.”
Read more: Global experts release 2022 forecast for Kiwi economic prospects
He said aside from Omicron, high inflation was crimping confidence and household budgets, while the war in Ukraine had caused a surge in commodity, petrol, and oil prices.
‘’We see growth over 2022 slow to 3% from last year’s 5.6%,” he said. “The Kiwi economy will cool over 2022 because industries continue to face serious capacity constraints.”
Kerr said dislocated supply chains were yet to be mended, pricing pressures remained elevated and available workers were few and far between.
The resilience of household consumption was also being tested with interest rates rising and the housing market showing signs of slowing down.
“Add to that red-hot inflation that’s squeezing budgets and eroding real incomes,” he added.
Kerr said there was room for growth in the new financial year despite the array of concerning factors.
‘’New Zealand’s economy is performing well because there are two pillars of support,” he noted. “The terms of trade is at record highs, export prices are elevated and provide a strong income injection for rural New Zealand.
“The second pillar will be the reopening of the borders to tourists and students which will act like a booster shot in the arm for the tourism and education industries.”
With interest rates rising, Kiwi Economics is forecasting more subdued growth of 3% over 2022 which will keep the RBNZ from lifting the cash rate.
‘’The housing market continued to cool with tightening credit conditions remaining as the main inhibitor of demand,” Kerr said. “The news that the government has moved to relax some lender requirements is certainly welcome.”
The New Zealand economy grew 5.6% on an average annual basis and the growth was across the country. The growth outlook for 2022 has softened; interest rates are rising, and the housing market is showing signs of slowing.
