New Zealand economy bolstered by property wealth effect and low interest rates – Update

By Stephen Wright

WELLINGTON, New Zealand – New Zealand’s economy grew rapidly in the first quarter as the Kiwis – unable to travel abroad due to the pandemic and benefiting from a wealth effect of rapidly rising real estate prices – spent more on restaurants, cars, furniture and local tourism.

The economy grew 1.6% faster than expected in the first quarter of 2021 compared to the last quarter of 2020 despite a border closure that deprived the country of two important industries: foreign tourists and international students.

The median forecast from a Wall Street Journal survey was that the economy would have grown 0.5% in the first quarter compared to the fourth. The stronger-than-expected growth increases the likelihood that the Reserve Bank of New Zealand will hike interest rates by the second quarter of next year, from a record high of 0.25%.

New Zealand’s economic growth was extremely volatile last year when a six-week lockdown to prevent the spread of Covid-19 caused a record contraction and a two-quarter rebound.

The recovery was supported by record interest rates, which contributed to a surge in home values, and government wage subsidies that kept people in jobs when the lockdown from late March to May of the last year closed most businesses.

Statistics New Zealand said service industries, which make up two-thirds of the economy, contributed the most to first-quarter growth. Construction also rebounded, supported by the booming real estate market.

“Households spent more on accommodation, restaurant meals and the purchase of expensive items such as furniture, audiovisual equipment and motor vehicles,” the agency said.

The economy was 2.3% smaller for the 12 months from April 2020 to March 2021, compared to the previous 12 months, showing the dramatic effect of the strict lockdown of the pandemic last year.

Write to Stephen Wright at [email protected]

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