Following the outbreak of the global pandemic all the economies suffered heavily and the cost was not merely confined to immediate signs such as massive loss of employment, but extended up a contraction leading to recession.
As borderers were closed, recession started recording a fall in the commercial construction projects that bolstered the country’s housing market.
According to official statistics, NZ’s gross domestic product (GDP) fell to 1 percent for the three months ended in December, after it had increased to a record 13.9 percent in the previous quarter.
Gloomy forecasts
Although the agreed forecasts were for growth of 0.1 percent, the forecasts were between a decline of 1 percent and an increase of 0.7 percent.
This was a sharp decline and was 0.9 percent lower than the same quarter previous year, with a forecasted annual average growth rate at -2.9 percent.
The most affected Sector of the NZ economy was construction which recorded 8.7 percent decline since the pace of big commercial and infrastructure projects drastically slowed down.
Furthermore, retail trade and accommodation, including bars, restaurants and hotel/motel stays, recorded a 5 percent decline in business that more or less signified the fell in foreign tourists’ visits.
Overall decline in the economy also reflected in the drop of the per capita GDP, which was 4.9 percent less than the previous year.
Economic Turmoil
According to Finance Minister Grant Robertson, NZ’s economy is strong and sound fundamentally and supported government and Reserve Bank stimulus. Leveling of the economy was to be expected following the strong third quarter.
“There is also a lot of volatility within sectors in the economy. For example, on these measures construction declined in the quarter but activity remains at historically high levels.”
The government would carry on with its policy direction and work closely with the sectors affected by the global pandemic.
However, some of the economists speculated that the economy would suffer further and record a fall in the first three months of the year, plunging again into recession.
National debt
IMF’s report indicated that the national debt increased significantly from 48% of DGP in 2020 to 60.2% of GDP in 2021 mainly due to the global pandemic. As of the current projections, the national debt would further increase in 2022 to 65.6%.
Major among the challenges that the economy would face include dependence on foreign investment, high household and corporate debt, reliance on Chinese demand, insufficient skilled workers, low R&D, and shortage of housing.
It is also vulnerable to international commodity prices, predominantly, dairy and meat. Government has taken several measures including allocation of public funds to reconstruct roads, railways, and the KiwiBuild Programme to stimulate the economy.
Other measures adopted include restricting access to low-skill workers and reduction of student visas to slow down housing demand, which would result in possible worker shortage and lowered population growth. These measure, invariably, result in the reduction of private consumption which is expected to grow modestly in 2021.
What is noteworthy is that the overall economic slowdown coupled with other challenges would result in the further shrinking of the economy. Despite these challenges, principally, due to global pandemic, NZ economy fundamentally remains sound and strong.
