29 Jun 2020

NZ economy predicted to emerge from Covid-19 better than most

9:03 am on 29 June 2020

The Covid-19 pandemic is expected to leave a lasting scar on the world's economies but New Zealand is likely to fare better than most, according to a credit ratings agency.

GDP drop

New Zealand's economy was expected to shrink 5 percent this year, but bounce back with 6 percent growth in 2021, an S&P Global review said. Photo: 123RF

A review by S&P Global said the recession would be uneven across the Asia Pacific region and New Zealand would be among the countries to escape with less permanent damage, the agency said.

New Zealand was in a small group of countries with well-targeted economic stimulus and management of the pandemic, including China, Korea, Taiwan, Australia, Japan and Singapore.

"New Zealand definitely is one of those economies that has exited the most severe periods of the pandemic first, and that clearly was just because what that allows the economy to do is reopen those face-to-face service activities that are so important for the labour market, and that hopefully should get jobs restarted people can go back to work," S&P Asia-Pacific chief economist Shaun Roache said.

The long-term cost to New Zealand's real GDP would be an estimated 2.7 percent, on par with Japan and Australia, and far lower than the cost of the Global Financial Crisis.

"That's going to be really important for how quickly economies bounce back but still it's going to be a pretty big hit we think this year," Roache said.

New Zealand's economy was expected to shrink 5 percent this year, but bounce back with 6 percent growth in 2021, followed by 3.4 percent growth in 2022 and 3 percent the following year.

"This is not business as usual, and one drag on the New Zealand economy will continue to be international travel and tourism.

"It's a pretty large share of New Zealand's GDP, and that's not going to come back anytime soon."

Unemployment was expected to peak at 5.8 percent this year, and drop back to 4.9 percent by 2023.

Inflation was expected to pick up to 1.8 percent next year and 2 percent in 2022 - the middle of the Reserve Bank's target of between 1 and 3 percent.

The Reserve Bank was expected to keep the Official Cash Rate at 0.25 percent until 2022, while the exchange rate was expected to remain under 68 US cents for the next three years.