New Zealand’s strong GDP rebound in Q4 2021 will be a brief respite

Economic activity in New Zealand bounced back strongly in the December quarter of 2021 after contracting 3.6% in the September quarter. This gave an annual GDP figure of 5.6% compared to the year ended December 2020.

Retail and hospitality spending was high as easing COVID-19 restrictions encouraged people back into the shops and restaurants.

Manufacturing moved into positive GDP growth in the final quarter of the year, being less affected by the lockdowns and more able to pass on price increases. Construction also performed well, rising to 8.7% in the December quarter.

The bounce back in the December quarter will prove to be short-lived with the first case of the highly infectious Omicron variant announced in mid-December, and now circulating widely throughout the country. As we head into 2022 households are starting to feel the pain of widespread higher prices, despite the strong labour market. There are also concerns that house prices have well and truly peaked and are only going to trend down over time.

Meanwhile, businesses generally will continue to struggle with supply chain disruptions, inflationary pressures and labour shortages. GDPLive is predicting GDP began contracting by early February 2022.

Given the continued turmoil in the economy, there were surprisingly consistent forecasts for Q4. GDPLive predicted a quarterly GDP growth of 3.36% and an annual GDP growth of 5.79%, marginally higher than the provisional figures from Stats NZ:

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