New Zealand has joined Australia in enjoying economic growth above the pre-Covid levels.
First quarter GDP rose a very strong 1.6% from December when it contracted by 1%.
March quarter growth was just behind Australia’s 1.8%.
But growth for the year to March was 2.4%, more than double Australia’s 1.1%.
The rise in the March quarter was largely due to low base effects in 2020 when Covid was (like everywhere else0 breaking over the economy.
For that reason the annual growth rate is likely to further accelerate in the current June quarter given the substantial fall that occurred in the second quarter of 2020 when the economy entered recession.
But importantly, the NZ economy has not completely shaken free of the impact of Covid – the economy remains around 2% to 3% smaller than before the pandemic struck.
Australia’s economy is now 0.8% above the pre-Covid level, according to the Australian Bureau of Statistics’s March quarter National Accounts.
Like in Australia solid domestic demand from households pulled the economy higher in the quarter with services the main lifter.
The gains in services were broad-based, with wholesale, business services and healthcare and social assistance reporting strong gains.
Over the quarter, services were up 1.1% quarter on quarter, but over the year dropped 3.4%.
The strong result in domestic demand was expected given solid employment growth, strong business confidence and credit card spending.
But exports fell 8% over the quarter, driven by a 20.2% fall in service exports, translating to a 48.7% contraction in annual terms.
This reflects the lower revenues from tourism as the country’s borders remain closed to international arrivals. The March first quarter is typically the peak for holiday and education arrivals (as in Australia).
Although New Zealand shares travel arrangements with select countries, including Australia, it is far from pre-COVID-19 levels and unlikely to return to a pre-pandemic state any time soon.
Moody’s economists point out that “The strength in domestic demand means that the government will continue to withdraw fiscal support and a high likelihood of the Reserve Bank of New Zealand beginning the normalisation process of the official cash rate in 2022.”
“The RBNZ introduced additional measures in June to cool the buoyant housing market, not least over concerns over the rise in household debt, which has increased to 166% of income.
“When lending rates do start to rise, it will need to be gradual considering the highly leveraged household sector as well as the fact that sectors remain vulnerable to spikes in infection rates, particularly given the slow-paced vaccination program.,” Moody’s speculated.