The economy is expected to emerge from recession in 2022, but it could be a miserable recovery


OPINION: Unpleasant surprises aside, 2022 is shaping up to be a year of nauseating recovery in the economic impact of Covid restrictions.

But economists do not foresee any simple veils and warn that much will depend on whether migrants choose and are again able to move to New Zealand in significant numbers.

One unfavorable scenario is a lackluster recovery weighed down by rising interest rates, which falters and prompts Kiwis and recent migrants to seek better employment opportunities and cheaper housing elsewhere.

Due to the timing of the Delta outbreak which began in Auckland in the middle of the third quarter to mid-August, the country is almost certainly experiencing its second technical recession in two years.

New Zealand statistics will likely confirm in February that most of the impact of Covid restrictions on GDP was felt a bit more strongly in the three months ending in late December rather than in the previous quarter.

This means that the economy will have experienced a decline in GDP for two consecutive quarters, and the economy will have spent the first half of 2020 and the second half of 2021 in recession.

With the economy moving out of that base, Infometrics economist Brad Olsen said a return to growth is almost certain next year in the absence of further bottlenecks.

“The feeling is that in 2022 things will be better. But the question becomes what the growth rate looks like, ”he says.

“I think anyone who thinks 2022 will be the year when we ‘get back to normal’ will be very surprised.”

Covid restrictions could be lifted in 2022, but that doesn't mean people will revert to their pre-pandemic behaviors.

SIMON O’CONNOR / Tips

Covid restrictions could be lifted in 2022, but that doesn’t mean people will resume their pre-pandemic behaviors.

On the one hand, low unemployment should boost the economy, but on the other hand, rising interest rates and the cost of living will weigh on the disposable income of homeowners.

“People saved a lot of money during the shutdowns, but we also know that consumer confidence has changed.”

Immigration is just one of the factors that will shape the economy next year, but Olsen says it is a key factor.

Net migration reached an all-time high of 91,900 in the year through March 2020 before the shutters closed, and fell to a measly 800 in the year through the end of September.

Much has changed for migrants who might have considered New Zealand as an option over the past two years.

On the other hand, average home prices were 33% cheaper the month before the Covid hit than they are today, with an average price then of $ 748,111.

Now it’s over a million dollars.

When migrants were able to enter New Zealand for the last time before Covid, house prices were two-thirds of their current level.

KEVIN STENT / Stuff

When migrants were able to enter New Zealand for the last time before Covid, house prices were two-thirds of their current level.

Infometrics swings net immigration to a respectable net of 25,000 in 2022, but Olsen says there can be a lot of variables involved.

“New Zealand seems to open up later than other parts of the world, so we can expect a slightly less enthusiastic rush to New Zealand because people have looked elsewhere.

More people may also start to look to other parts of the world “given the challenges of the cost of living in New Zealand, particularly in housing,” said Olsen.

But he says the big development was the government’s decision in September to give 165,000 temporary workers who are already in the country a fast route to residency.

This means that 100,000 to 165,000 temporary residents who would otherwise have left the country in the next two or three years can now stay, and migration is expected to hold up more strongly than Infometrics predicted.

“Our feeling is that the pandemic combined with the government’s intentions will see net migration return to between 30,000 and 35,000 per year from 2024 to 2026,” Olsen said.

“We’re not going back to 60,000 a year quickly, if ever. “

Jarden economist John Carran agrees there are a lot of things that are known but also foresees some kind of rebound when Auckland opens.

He doubts it will be as strong or sustained as after the first round of lockdowns in 2020, and he fears activity will decline as the year progresses.

“The environment has changed, in that we will have endemic Covid,” Carran says.

Google mobility data suggests that even in US states that have opened up significantly in the wake of Covid, trips to workplaces and stores remain significantly below pre-pandemic levels, he says.

“This is partly because of people’s reluctance to go out, and partly because Covid has entrenched a preference for shopping online.

“People can be reluctant to go out to restaurants, bars, that sort of thing. On top of that, there will be social distancing requirements that will limit capacity in most places. “

Greg Harford, managing director of Retail NZ, predicts job losses and job losses in the retail sector as mortgage rates rise, at least the first half of next year looming “extremely dark”.

The costs of doing business are rising, supply chain problems persist and Auckland businesses have been plagued by the bottlenecks, Harford says.

“There are businesses that are going to close and I don’t think we’ve seen the impact of that on the economy yet,” he says.

“We expect consumers to be significantly less confident once we move into the new year and that will obviously affect the performance of the business.”

Carran says overseas countries are opening up and returning, if not quite to normal, so “closer to normal”, while for at least a period New Zealand “will do the opposite “.

This could be reflected in immigration trends, he believes.

“If New Zealand has a more difficult time next year and the following year, economically, it could potentially tip the balance towards more departures than departures.”

The high price of housing could deter migrants from settling in New Zealand and persuade some Kiwis to look to Australia or the UK for more bang for their buck.

While it may sound pessimistic, Carran also says the economy is unlikely to fall off a cliff.

“There is a very good pipeline of construction going on right now and we should always see our exporters doing well, as long as the global economy continues to open up.

“The job market has been tight, wages tend to react a bit late, so there are positive factors there. “

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