ANZ has released its latest quarterly economic report, and chief economist Sharon Zollner said that New Zealand is “well on its way to recovery” despite widespread predictions of a drawn-out recession this time last year.
Zollner said the economy has been “stronger than we at ANZ, or the RBNZ, dared hope it would be this time last year,” and she said this can be largely attributed to New Zealand’s early success in stamping out the virus, and the swift fiscal and monetary policy measures put in place to help stimulate growth.
“Our success in eliminating the virus has meant that we’ve spent the last 12 months living relatively normally,” Zollner said.
Read more: What’s going to happen to the New Zealand OCR?
“It’s hard to overstate the misery that other countries that did not control the virus have gone through. GDP has recovered spectacularly, and recent labour market data showed that New Zealand’s labour market is far closer to full employment than anyone could have hoped for.”
“The most obvious impact of monetary policy has been through the housing market,” she continued.
“With interest rates at historic lows and the removal of loan to value restrictions, we saw house prices surge in 2020, against expectations that they would fall.
“For better or worse, the housing market has been the key driver of the economic rebound from lockdown.”
Zollner noted that housing demand is still well above current supply, which has in turn provided a significant pipeline of work to the construction sector. However, she said the construction sector’s capacity constraints may prove to be a serious challenge going forward, partly due to the lack of overseas workers and supply chain disruption.
She said New Zealand’s slow movement on vaccinations is also a negative, with only 4% of the population vaccinated so far.
Read more: ANZ economist warns on impact of OCR increase on mortgage
“Until we can establish herd immunity in New Zealand, the risk of returning to lockdown looms large,” she said.
“With housing momentum already showing signs of fading, the risk that economic momentum follows suit isn’t to be sniffed at.
“However, we think the housing market fundamentals are strong enough to put a floor under things, and the additional stimulus announced in Budget 2021 makes us a little more confident that underlying economic momentum will stay the course, even if the housing market deteriorates a little faster than expected.”