NZ standing by for another recession

Joseph Darby

Westpac economists predict another recession to hit NZ, though the housing market should remain red hot

New Zealand is set for another recession this year, Westpac’s economists say – but it won’t be enough to stop the runaway housing market.

A recession is a significant decline in general economic activity. It is usually recognised as two consecutive quarters of falling economic output measured by Gross Domestic Product (GDP). GDP is the total monetary or market value of all the finished goods and services produced within a specific area – such as a country or state – during a year. Often, recessions go hand in hand with redundancies, sharp falls in the share market, growing queues for unemployment benefits, boarded-up shops on the main street, and so on.

However, nearly everyone agrees that NZ has weathered the Covid-19 pandemic better than expected so far – both economically and health-wise. Some positive economic impacts have even been felt as Kiwi’s have stayed in New Zealand when normally there would be a net outflow as many of us enjoy winter holidays overseas. Though this doesn’t detract from the fact that some individual businesses have been hit particularly hard by even brief lockdowns.

New Zealand was plunged into a recession during lockdown last year but rebounded in the September quarter.

Westpac’s economics team expect the closed borders will lead to another recession over the early part of this year.

Second NZ recession

Uneven recovery

As another recession bears down on us, some of us are clearly experiencing more hurt than others. This could stay that way, for instance with those affected by the closure of the international border, such as retail, hospitality, and transport, have experienced significant job losses over the last year. But this has been outweighed by growth in other areas, especially those linked to government spending such as health, education, and public services. The other major area of jobs growth has been construction, which is enjoying booming demand and has been able to pick up cross-trained or re-skilling workers displaced from other sectors.

The uneven nature of things explains why we might hear reports of skill shortages at the same time as unemployment has risen.

Housing market

NZ’s favourite type of investment, housing, is predicted to keep booming.

Westpac does not expect any interest rate increase until 2024, and they predict the housing market will continue to roar ahead while interest rates are low. House prices lifted nine per cent in the last three months of 2020 alone.

Westpac’s economics team expect the closed borders will lead to another recession over the early part of this year.

Other threats

Housing markets and the NZ economy remain at-risk of further Covid-related issues, or something different altogether.

NZ has always been vulnerable to natural disasters, and as an exporting nation, we are also reliant on our farmers being able to generate and export produce to overseas markets without interruption.

So what?

Against such a backdrop, the wise will keep any investments well-diversified and perhaps hold a supply of cash on hand should it be needed.

Younger readers might be able to make the most of low interest rates to buy a first home. Get in touch about buying a first home.

The bottom line – another NZ recession is potentially upon us

Though another recession looms, most Kiwi’s have hopefully put the worst of Covid behind us. Many areas of the economy should continue to do well, though many will also continue to struggle.

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