New Zealand GDP Likely Suffered Less From Delta Than RBNZ Feared
(Bloomberg) -- New Zealand’s economy may have suffered less damage from the delta outbreak in the third quarter than the central bank expected, adding to risks of faster inflation.
Economists estimate that gross domestic product fell 4.1% in the three months ended Sept. 30, according to the median forecast in a Bloomberg survey. By contrast, the Reserve Bank last month forecast a 7% contraction. The data are due Dec. 16.
A milder slump in GDP and signs of an immediate return to growth in the final months of 2021 suggest price pressures could keep building in 2022. The RBNZ has embarked on a tightening cycle and intends to raise rates in steady, 25-basis-point steps, but Assistant Governor Christian Hawkesby told Bloomberg in an interview last month that it may need to move faster if inflation expectations continue to rise.
Latest data have been “much less negative than we expected,” said Gregorius Steven, an economist at Westpac in Auckland, who forecasts a 3% contraction in third-quarter GDP. “A strong result would give the market confidence the latest round of lockdowns didn’t derail the economy, and that inflation pressures that we’ve seen over the course of this year could become more persistent.”
New Zealand was plunged into a short, nationwide lockdown in mid-August after a community outbreak of the delta variant, with largest city Auckland, which accounts for a third of the economy, eventually shuttered for 15 weeks. Auckland’s lockdown ended on Dec. 3 and a temporary border around the city will be lifted tomorrow, allowing residents to travel again.
Economists had first feared the lockdowns could see a repeat of last year’s recession, when the economy shrank a record 9.9% in the three months through June 2020. They updated their projections after data last week on manufacturing, construction and wholesale trade weren’t as bleak as anticipated. Those reports weren’t available when the RBNZ made its forecasts.
The RBNZ has raised the official cash rate twice, to 0.75%, and last month projected a steady tightening cycle that will take the benchmark to 2.5% over the next two years.
The central bank predicts the annual inflation rate will peak at 5.7% before starting to ease, while some economists see it accelerating to as much as 6%. The rate jumped to 4.9% in the third quarter.
A gradual reopening of the international border next year and the boost to household spending from rising wages should guide the economy to a sustainable growth path in 2022, said Miles Workman, economist at ANZ Bank New Zealand in Wellington.
Still, “a very big test for the economy still lies ahead after direct fiscal support has ended, the housing market has slowed and higher interest rates bite,” he said. “With so much economic distortion to work through there could easily be a few bumps along the way.”
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