The NZ economy recovered quickly from the impact of the strict Covid-19 Alert Level 4 lockdown back in March and April 2020, with Q3 GDP lifting a whopping 14% quarter on quarter, bringing the level of activity back to pre-COVID levels. This momentum continued through late 2020 and throughout 2021. Business confidence waned due to the tourism sector and the previously booming construction sector coming up against constraints of limited labour supply and delays of imported materials. The economic gauges fluctuated considerably through 2021 due the unprecedented effect of the corona virus pandemic on local and global economies.
The further Covid outbreak in late 2021 sent NZ back into Alert L4 lockdown, hampering non-essential business activity. Once again, the NZ economy demonstrated remarkable resilience in the face of Covid-19 and was expected the economy will return to pre-Delta levels over the first half of 2022. NZ adjusted to living with the continued impacts of COVID-19 and growing headwinds from the sharp increase in the cost of living and rising interest rates with OCR increases through 2022 from 3.0% to 4.25% in November, 4.75% in February 2023, 5.25% on 5th April and to 5.5% in May at which it remained for rest of the year and into 2024 to date.
New Zealand’s economic growth outlook is looking particularly low for the next year or so as continued high inflation, high interest rates, the war in Ukraine, slowing construction, softer agriculture production and more cautious households will remain big themes into 2024.
As we move into 2024 there isn’t a lot of new news to report in terms of the housing market pulse with the correction remaining pretty orderly and levels increasing again slowly with the reduction in prices since early to mid 2022 steamed in last quarter of 2023 after a volatile spell. Agents to date are reporting renewed vigour in the residential markets. House prices are now more than one quarter below late 2021 peaks in inflation-adjusted terms. This may change, of course, as the economy remains slow and labour demand follows suit. The fact that bank lending became a lot more prudent following the GFC, suggests households have weathered the downturn better than otherwise expected. The wobbly global economy could always throw a curve ball; housing policy changes and/or a significant net migration surprise could alter the landscape at the margin too.
Persistent inflation, fiscal policy, population growth, the housing market and global tensions present the major challenges to New Zealand’s economy this year. Net immigration flows are volatile and unpredictable, and it is unclear how net immigration inflows will pan out over 2024 with strong population growth and record net immigration likely to exacerbate housing shortfalls.
