Published: 19 January 2022
New Zealand also had a zero Covid policy, which has only very gradually given way to a lifting of restrictions. The vaccination programme has gathered pace and currently stands at over 75% of the population with both jabs. Although restrictions were eased for some time, the country has again said the border will be closed due to pressure on the quarantine system. The pickup in Omicron cases has been significant, though substantially lower than in Australia.
The New Zealand economy grew by 6.5% over the course of 2021 as it bounced back from the Covid dip. This is expected to slow considerably in the coming year to 4% and this could come lower still if further restrictions are introduced as a result of Omicron cases. Official statistics covering visitor arrivals reflect the stop-start nature of restrictions with the annual change last year between -98.7% and +2531.6%.
Producer prices showed manufacturers costs rising 1.6% in the third quarter with factory gate prices going up by 1.8%. Business NZ’s performance of services index stepped further into contraction, with a two-point fall to 44.6. Business Confidence for December hit a new low of -23.2, suggesting there will be challenging times ahead.
Elsewhere building consents showed some positive data, hitting new highs in November. This was a rise of 26% from a year ago. The Reserve Bank of New Zealand may take an interest in the continued buoyancy of the residential property market. Inflation meanwhile continues to push higher with the latest reading at 2.2%.
New Zealand’s tough border restrictions have been crucial to its avoiding an Omicron outbreak and keeping Covid cases extremely low – but they are also a source of increasing heartache and rage for those who have found themselves locked out, often in extremely difficult personal circumstances.
The increase in vaccination at the end of last year has gone some way to clear a path out of the pandemic, but it has not been without challenges for Jacinda Ardern. On a visit to Auckland, she was faced with protestors about the handling of the pandemic and vaccine mandates. The government put in place a traffic light system to help move forward with travel plans, but there were very few green lights around.
One area that certainly hasn’t been slowing is the housing market which seems to go from strength to strength. PM Ardern has hinted that she may want prices to fall a bit, but definitely not collapse.
The Reserve Bank of New Zealand has been leading the charge on higher rates to combat inflation. House price inflation has been one of the biggest issues, though CPI inflation has also been picking up sharply to 2.2% at the latest reading. The RBNZ has hiked interest rates twice at the end of 2021, after pausing in the third quarter due to the number of Covid cases. The markets expect further rate hikes in 2022 to take rates up to 1.25% as the RBNZ continues to try and dampen inflation pressures.
The Kiwi dollar took a bashing after the most recent hike as a punishment for the Reserve Bank of New Zealand’s failure to be more aggressive. Now that the RBNZ has a mandate to pay attention to House Prices, which are up over 30% in the year, the expectations are for further hikes early in 2022. These hikes will only be a part of the solution, and the central bank will no doubt look towards government policies to help to cool the housing market.
The story in New Zealand has been of similar volatility with a move down from 1.95 to 1.8850 within the quarter. We then saw a strong rebound for sterling taking the pound up over 2.00 for the first time since the summer. The central bank hikes in New Zealand look set to continue and with a path out of isolation given the vaccination level, it is likely that the Kiwi economy will continue to recover and is likely to see inflation continue to rise. Most forecasters do not see sterling remaining at the current levels over the course of the year.
The story in New Zealand has been of similar volatility with a move down from 1.95 to 1.8850 within the quarter. We then saw a strong rebound for sterling taking the pound up over 2.00 for the first time since the summer. The central bank hikes in New Zealand look set to continue and with a path out of isolation given the vaccination level, it is likely that the Kiwi economy will continue to recover and is likely to see inflation continue to rise. Most forecasters do not see sterling remaining at the current levels over the course of the year.
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The European Union has had a tough winter so far with Covid restrictions as a result of the Omicron wave. The Economy finished the year strongly with expectations of a positive year, though the ECB may have to take some action on rapidly increasing inflation.
The US has been working on many fronts, internationally with Russia and China, and domestically with an increased fiscal spending plan. The economy has been growing strongly, prompting action from the Fed, though masses of Covid cases may halt the recovery.
Australia has been trying to return to normal with reduced restrictions and higher vaccine rates. It hasn’t been plain sailing, with current Omicron cases at record levels. The economy has been making up ground, with inflation lower than most major economies.
Recent data shows that the UK economy regained its pre-pandemic size at the end of November. Supply disruptions, falling unemployment and rising inflation will continue to be themes for the year, with the rate hike by the Bank of England unlikely to be the last.
The increase in oil and commodity prices has benefitted the loonie somewhat. With the potential for further rises, we could see
further strength in the first part of the year, with inflation and interest rates likely to head higher.
