Investment in New Zealand

New Zealand - Investment

The economy rebounds in Q2 amid easing Covid-19 restrictions

GDP increased 1.7% in seasonally adjusted quarter-on-quarter (s.a. qoq) terms during Q2 2022, as the easing of Covid-19 containment measures and border restrictions boosted tourist arrivals. The result, which beat market expectations, followed Q1’s 0.2% contraction. On an annual basis, GDP expanded 0.4% in Q2, following Q1’s 1.0% increase.

The quarterly turnaround came on the back of a marked rebound in external demand. Exports jumped by 20.5% in Q2 (Q1: -14.6% s.a. qoq), as exports of services were propelled by strong growth in the travel and transport industries. Meanwhile, imports shrank 1.4% in the quarter, after decreasing 2.6% in Q1, amid subdued domestic demand.

On the domestic front, private consumption fell 3.1% s.a. qoq (Q1: +5.0%), as household cut spending on both durable and non-durable goods amid rising interest rates and soaring inflation. Moreover, fixed investment declined 3.3% s.a. qoq in Q2 (Q1: -0.2%), with demand for transport equipment particularly weak. Moreover, government spending growth moderated (Q2: +0.6% s.a. qoq; Q1: +2.0%).

Looking ahead, momentum is expected to slow during the second half of this year, as sustained inflation and higher interest rates restrain household spending. A high level of household debt, spillover effects from the war in Ukraine, and a weak economic performance in China are downside risks.

Commenting on the release, Lee Sue Ann, economist at UOB, stated:

“Overall, data is still very volatile and is likely to stay that way for the next couple of months, with offsetting effects due to the normalization and recovery from lingering Covid-19 disruptions against softer domestic demand from higher interest rates as the RBNZ [Reserve Bank of New Zealand] tightens monetary policy. This will set the scene for slower growth towards the end of the year and into 2023.”

FocusEconomics panelists project the economy to grow 4.5% in 2022, which is unchanged from last month’s estimate, and 3.2% in 2023.