Some “scars” but the economy will rebound

Photo / Getty Images.

Many small businesses will need a Christmas boost, according to ASB.

New Zealand’s economy will lose a year of growth – and the recovery after the latest Covid lockdown will be more gradual, according to ASB chief economist Nick Tuffley.

Speaking during the ASB Backing Business webinar on the economic state of the nation, Tuffley said life can be turned upside down very quickly, but “we are now learning to live with Covid in the community.”

“As we enter the traffic light system – there is usually not much difference between the levels of restrictions – there will be a release of pain and pressure, especially in Auckland, and less disruption. for companies because they will be able to remain open.

“Corporate sentiment is collectively more optimistic than last year, but there will be a wide range of individual experiences from people who have done extraordinarily well to those who are really struggling.”

The economy had rebounded well this year, with annual gross domestic growth of 5.1 percent. That changed when the country went into lockdown in mid-August; Auckland, the economic powerhouse, stayed there longer.

This lockdown has dragged on and there will be “a little more scarring,” Tuffley said. There will be businesses that cannot reopen or that will be smaller if they do.

“The pressure is more extreme for the hotel industry and small businesses in downtown Auckland, and getting out of the lockdown will be more difficult for them. They will be getting ready for Christmas – and one of the issues will be how is going. trading during the summer, especially at New Years.

“If there is an exodus from the city, then these businesses will be counting on making money before Christmas to get through the holiday season.”

Nick Tuffley, chief economist of the ASB, says
Nick Tuffley, chief economist of the ASB, said that “the last rebound will not be so sharp and fast”. Photo / Supplied.

Data from October and November show the hospitality sector in Auckland is trading at just 4% on average, compared to the same period in 2019.

Tuffley said that this time around, fewer companies signed up for Financial Assistance Programs (ASBs) as many had built up cash reserves to help provide a financial buffer. It seems that many companies have been successful so far, but there is still a long way to go.

Commercial activity was affected from mid-August, although some degree of normalcy returned in areas outside of Auckland and Waikato when they returned to Alert Level 2. Tuffley said said, “We will see decent growth early next year. , bringing us back to where we were before, growth will remain subdued for the rest of the year. “

The SBA predicts that gross domestic product (GDP) will fall by 7% in the September quarter, a figure to be released by Stats NZ on December 16.

The bank estimates that GDP will rebound by 5% in the December quarter, 2% more in the March quarter of next year, followed by activity gains of 1.5% in the June and September quarters.

The aftermath of the first foreclosure in March last year revealed an 11% drop in GDP for the June quarter, but by the end of September activity jumped 13.9%.

The recovery continued throughout the first half of this year (up 1.4% in the March quarter and 2.8% in June), with annual GDP growth of 5.1% in the March quarter. June ; the economy had reached 340 billion dollars. But the hard work was undone as the Delta variant spread.

“We’ll make up for the drop (from the last quarter of September) around the middle of the year,” Tuffley said.

“Shifting from an elimination strategy to a suppression strategy, under the new Covid traffic light system, means there will be some restrictions – but they won’t have the same impact, as businesses can stay open; the transition will be more orderly. “

The first lockdown last year was brutal but shorter, he said: “You had a really extreme feeling – the fear of losing your job has shifted to the fear of missing out, and the people who usually vacationed abroad splurged on household goods.

“The housing market has taken off phenomenally and the construction boom has intensified further. Exports have continued, although there have been disruptions in shipments.”

Tuffley said the last bounce won’t be so sharp and quick. “Credit will be tighter, interest rates will rise, fewer people are entering the country and population growth is low, and we are building more houses and supply is catching up.

“We won’t see the same crazy, crazy housing boom. There will be a further pick-up in consumer spending, construction will continue to grow, and the service sector will start to return to normal levels. Tourism and international education will also return next year. “

The labor market is much tighter – with unemployment reaching 3.4% in the September quarter, the lowest since December 2007: “Companies know how difficult it is to recruit staff and they have learned last year that they need to keep their staff. If they recruit, then they face increased wages, as well as cost pressures such as import and freight. “

There is also the effect of rising inflation. The SBA forecasts inflation of 5.9% for the December quarter, compared to 4.9% in the September quarter, the highest since the second quarter of 2011. The SBA estimates that inflation will settle just in above 3% over the next year, falling to 2-2.5 percent later.

“Rising wages are struggling to keep up with inflation,” Tuffley said. “I expect companies to pass much of their increased costs on to prices. The ability to do so reflects the strength of consumer spending, but real wage growth will suffer in the short term.”

There were positive points for households. Job security was good, they had accumulated their savings, and they paid off their credit card debts.

“They say it’s always darker before dawn, and that’s where the country has been. We are moving to an environment where we are learning to live with Covid,” Tuffley said.

“The price for keeping Kiwis safe will be a bit lower as long as we don’t fall into very restrictive lockdowns and all the challenges and costs that they impose. With very high vaccination rates, you can get your life back. largely normal life. “

For more information, resources, and tools to help your business prepare for the future, visit the ASB Business Hub

About Mark A. Tomlin

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