New Zealand Avoids Recession as Economic Growth Surges

By Tracy Withers



(June 17, 2021, 8:51 AM) New Zealand’s economy avoided a double-dip recession as growth surged at three times the pace forecast by economists in the first quarter.

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A booming property market and fiscal and monetary stimulus are helping the economy to cope with the closed border, which has decimated the key tourism industry. The central bank signaled last month that it may start to raise the official cash rate in the second half of next year, and some economists expect it to act sooner as inflation pressures build.

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“Stronger than expected domestic demand coupled with growing cost pressures are a potent mix for inflation,” said Jane Turner, senior economist at ASB Bank in Auckland.

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New Zealand’s success in containing Covid-19 allowed its economy to stage a V-shaped recovery. The unemployment rate fell to 4.7% in the first quarter after peaking at 5.2% last year, well below predictions at the outset of the pandemic.

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Some economists are warning the economy -- and inflation -- may be stronger than the RBNZ anticipates, and are tipping an interest rate rise in the second quarter of 2022.

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(Source: https://www.bloomberg.com/news/articles/2021-06-16/new-zealand-avoids-double-dip-recession-as-economic-growth-jumps)



(a) Explain how a "booming property market" has helped the New Zealand economy, and how a "decimated" tourism industry has hurt the economy.



(b) Briefly explain why the New Zealand authorities implemented monetary stimulus in 2021, but are now expected to raise interest rates in 2022.