Will NZ economy be insulated from impact of Ukraine war?

March 10, 2022 03:48 PM AEDT | By Manika
Follow us on Google News:

Highlights

  • NZ is not a big trading partner with Russia or Ukraine.
  • Its greatest impact will be because of oil price hikes.
  • Commodity price increases may help the Kiwi dollar.

New Zealand is a minor trading partner for Russia and Ukraine, with Russia accounting for only 0.4% of exports and Ukraine even a smaller number. So by that yardstick, the impact on NZ should be minimal.

However, global economic impacts are going to be felt in New Zealand as well.

The Russian invasion has sent commodity prices skyrocketing, creating fears of food shortages and further supply chain disruptions.


Also Read: New Zealand placed on Russia’s ‘unfriendly’ countries list

While rising commodity prices may not be all that bad for New Zealand, especially primary producers, rising oil prices will add to inflationary pressure in the country.
Also Read: Russia-Ukraine war impact on Asian economies

The most obvious impact for most New Zealanders will be through petrol prices. After the US and the UK announced a ban on imports of Russian oil, oil prices will rise further with the impact being felt on people’s pockets. NZ has already witnessed major hikes in petrol prices.

In the last three months, the price has gone up by NZ$1 per litre. In most parts of the country, the price of 91 octanes is NZ$3, and it is likely to be NZ$3.30 within weeks, as per analysts.  In the coming days, it might move up to NZ$3.50. This is steep when compared to NZ$2.45 per litre in the December quarter of 2021.

Also Read: How Russia-Ukraine conflict could affect Australian consumers

Image source: © 2022 Kalkine Media New Zealand Ltd

It is expected to increase further as the benchmark international oil price has already touched NZ$136 and may even reach US$150 a barrel if the crisis goes on like this.

Economists feel that rising oil price increases will add significantly to inflation which was already at an all-time high. Oil prices have increased by almost 60% this year. An increase in oil prices affects everyone. They act as a tax on spenders both at pumps and in everyday cost of living.

While the impact of oil is going to be major, other commodities prices are also going to have an impact on inflation in NZ.

For New Zealand, rising commodity prices will support the Kiwi dollar and will positively impact exports, offsetting the impact of the rising import bill due to high oil prices.

Inflation which has touched 6% lately is likely to reach 7%, analysts feel.

New Zealand has not seen the peak of inflation as yet. It would impact every aspect of people’s lives.

After COVID-19-related supply chain disruptions, the Ukraine war is going to cause another round of the same.  These will have a serious inflationary impact.

Fertiliser prices are also edging higher because of the War on Ukraine and that could impact farmers.

The central bank assumes importance in keeping the inflation under check. It would have to raise the OCR rates in quick succession to keep curb the rising inflation.

Economists are expecting rate hikes in its April and May Monetary Policy Review.

Bottom Line: The Ukraine-Russia conflict is going to impact New Zealand through increases in oil and commodity prices, further fueling inflation. However, its trade with Russia is not significant so there is no direct economic impact.


Disclaimer

The content, including but not limited to any articles, news, quotes, information, data, text, reports, ratings, opinions, images, photos, graphics, graphs, charts, animations and video (Content) is a service of Kalkine Media Pty Ltd (Kalkine Media, we or us), ACN 629 651 672 and is available for personal and non-commercial use only. The principal purpose of the Content is to educate and inform. The Content does not contain or imply any recommendation or opinion intended to influence your financial decisions and must not be relied upon by you as such. Some of the Content on this website may be sponsored/non-sponsored, as applicable, but is NOT a solicitation or recommendation to buy, sell or hold the stocks of the company(s) or engage in any investment activity under discussion. Kalkine Media is neither licensed nor qualified to provide investment advice through this platform. Users should make their own enquiries about any investments and Kalkine Media strongly suggests the users to seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice), as necessary. Kalkine Media hereby disclaims any and all the liabilities to any user for any direct, indirect, implied, punitive, special, incidental or other consequential damages arising from any use of the Content on this website, which is provided without warranties. The views expressed in the Content by the guests, if any, are their own and do not necessarily represent the views or opinions of Kalkine Media. Some of the images/music that may be used on this website are copyright to their respective owner(s). Kalkine Media does not claim ownership of any of the pictures displayed/music used on this website unless stated otherwise. The images/music that may be used on this website are taken from various sources on the internet, including paid subscriptions or are believed to be in public domain. We have used reasonable efforts to accredit the source wherever it was indicated as or found to be necessary.



Top ASX Listed Companies

We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it. OK