NZ Economic Charter: Three Silver Linings in the COVID-19 Cloud

Summary

• While the nation’s second infection wave is under the scanner, optimistic revitalisation signs cannot be ignored.
• NZ noted an uptick of ~11.8k in the number of paid jobs during the week ended 19^th July 2020, and a fall of 0.2 per cent in June quarter’s unemployment rate.
• Non-store and commission-based retailing saw a sharp increase of 20 per cent over the June quarter despite a slump in retail sales volumes, with emerging online trends.
• The property market has been shaking off the COVID-19 impact since June 2020, registering increases in annual sales volumes and property prices.
• Containment of the virus cases in Auckland is emerging as a sink or swim test for the Government.

While second infection wave is under the scanner after 102-days long virus-free streak, the nation seems to be performing fairly well than several other advanced countries, in terms of revival in the economic activity. Dedicated efforts from policymakers to get the economy back on its feet have been instrumental towards this end.

The recent performance of macroeconomic indicators suggests that the nation’s swift adoption of social norms induced a robust recovery in economic activity from May 2020, beating cautious expectations. The optimistic signs of revitalisation gleaming across different domains of the NZ economy are testifying the same.

With that said, let us quickly discuss the silver linings evolving in the dark cloud of COVID-19 storm, bolstering hopes of better than expected economic revival:

Bright Spots in the Labour Market

As per Stats NZ, the number of paid jobs marked an uptick of ~11.8k to ~2.2 million during the week ended 19^th July 2020. A maximum surge of 9.5k jobs was observed in services industries over the period, with goods-producing industries witnessing a modest increase of 500 jobs.

Surprisingly, NZ’s Q-o-Q unemployment rate also fell to 4 per cent in June 2020 quarter, fuelling debates amongst economists over the importance of jobless rate in assessing the labour market situation. According to RBNZ, June quarter’s unemployment rate understates the increase in labour market’s spare capacity, with jobless rate likely to peak to ~8 per cent in December quarter.

Though the labour market appears to have performed better than anticipated in terms of paid jobs and unemployment rate so far, risk lingers over the economic repercussions from recent Auckland lockdown and potential termination of the wage subsidy scheme, which has so far moderated the fall in employment.

Online Sales Picking Up Steam Despite Tottering Retail Sales

While social distancing measures pressed hard on NZ retail sales that plunged by 15 per cent during June 2020 quarter, non-store and commission-based retailing saw a sharp increase of 20 per cent over the period. The figures suggest a shift in New Zealanders’ shopping habits during the lockdown in response to store closures.

The latest data from NZ Post demonstrated that Kiwis’ shopping habits shifted to online in the first half of 2020, with online spending soaring by 30 per cent relative to 1H 2019. The research found that NZ$1 in every NZ$4 was spent on online shopping during the first week of Alert Level 3 restrictions in Kiwi Land.

Notably, new social distancing regulations and consumers’ shift to e-commerce transactions may play an important role in defining the trajectory for retail sales revival. Amplification of online presence by retailers and some well-deserved retail therapy by consumers could act as salvage here.

Home Sales & Property Prices Make Up the Leeway

While Alert Level 3 restrictions on the real estate market made it difficult for property sales to occur in May 2020, the NZ property market has been shaking off the COVID-19 impact since June 2020, registering increases in annual sales volumes and property prices.

Post observing a Y-o-Y surge of 7.1 per cent in home sales volumes during June, the number of residential properties sold in July climbed by 24.6 per cent from the same time last year, as per Real Estate Institute of New Zealand (REINZ) latest numbers.

Besides, median house prices jumped by 14.8 per cent in July 2020 relative to July 2019 across Kiwi Land, with four regions observing record median prices, including Waikato, Taranaki, Gisborne and Manawatu/Wanganui.

While the Global Virus Crisis delivered a heavy blow to the real estate market initially, rebounding home sales and recovering house prices are offering beacons of hope in this pandemic-stricken environment. However, NZ’s return to stringent lockdown restrictions may place a constraint on the nationwide property market, stimulating falls in new listings.

Bottom Line

Even though promising signs are popping up in recent economic data, tumbling business confidence, plummeting retail sales, the spectre of deflation and potential expected surge in unemployment rate need closer attention before drawing any over-optimistic economic view.

Moreover, it is hard to discern the actual shape of revival from the coronavirus crisis with the containment of second infections’ wave in Auckland emerging as a sink or swim test for the Government.