Nov 05 2020
The COVID-19 pandemic has had a stunning impact on the global economy, and has led to a permanent shift in the operating landscape for millions of businesses. As at 4th November, over 47.4 million cases of COVID-19 have been recorded and over 1.2 million fatalities have occurred globally. At a time when the accelerating spread of COVID-19 is disrupting much of the developed world, IBISWorld has examined how this historic pandemic has permanently shifted the global economic landscape.
This report examines how the COVID-19 pandemic has influenced national economies across the globe, including analysis of GDP, unemployment, consumer sentiment, business confidence, household discretionary incomes, monetary policy and fiscal spending. It looks at the top five industries to fly and fall in each country over the next 12 months. In addition, IBISWorld has investigated the outlook for COVID-19 restrictions and what a return to normal operating conditions will look like.
While COVID-19 may subside if a vaccine is developed and distributed, the economic impacts of the pandemic will likely continue for years to come.
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Real GDP in New Zealand is expected to decline by 4.3% in 2020-21, to $245.7 billion. The impact of the COVID-19 pandemic on the New Zealand economy was strongest in the first quarter of the financial year, from April to June. An extensive lockdown of the New Zealand economy during the first quarter successfully achieved a near-elimination of COVID-19 across the country, enabling a relaxation of almost all COVID-19 restrictions. As a result, New Zealand’s economic growth has rebounded after the first quarter and is expected to remain strong throughout the year. However, a small outbreak in Auckland, and ongoing restrictions on international travel, have continued to place downward pressure on economic growth.
The New Zealand economy is expected to achieve real GDP growth of 5.7% in 2021-22, to reach $259.6 billion. New Zealand has outperformed most economically developed nations in its containment of the outbreak of COVID-19, enabling a faster economic recovery. A low cash rate, increasing government consumption expenditure and a falling unemployment rate are expected to boost GDP growth in 2021-22.
Over the next five years, GDP in New Zealand is forecast to grow at an annualised 3.2%, to reach $287.1 billion. While government expenditure is expected to support this growth, the economy is likely to be constrained by slower growth in net migration, construction activity and household expenditure in the years immediately following the COVID-19 pandemic.
The rate of unemployment in New Zealand is expected to rise by 2.7 percentage points in 2020-21 to 6.8%. The containment and near-elimination of COVID-19 in New Zealand has enabled most industries to return to normal operations, limiting a rise in unemployment. However, ongoing international travel restrictions have significantly constrained industries reliant on tourism, particularly accommodation, hospitality, sight-seeing transport and retail.
Unemployment is expected to improve in 2021-22, dropping by 0.9 percentage points to 5.9%. A recovery in business confidence is expected to drive an expansion of business demand for labour, creating new employment opportunities. In addition, the gradual reopening of international borders is likely to support a revival in tourism activity, enabling a rebound in employment across tourism industries.
Over the next five years, the national rate of unemployment in New Zealand is expected to decrease at an average annual rate of 0.46 percentage points through 2025-26, to a low of 4.5%. This recovery in unemployment is expected to be driven by strong monetary and fiscal stimulus, as well as the weakness of the New Zealand dollar.
Consumer sentiment is expected to fall by 18.2 index points in 2020-21, to average 100.7 index points. This represents the lowest sentiment in New Zealand since 2008-09, when the global financial crisis disrupted the economy. Consumer sentiment in New Zealand became negative during the first stages of the COVID-19 pandemic, in April and May 2020. Although consumer sentiment has since improved, it was constrained in August by a minor outbreak of COVID-19 in Auckland.
In 2021-22, consumer sentiment is expected to increase by 7.5 index points, to 108.2 index points. Consumer sentiment is anticipated to improve in response to a steady decline in unemployment, as well as an expected rise in household discretionary incomes. New Zealand has shown resilience in being able to quickly contain small outbreaks of COVID-19, enabling normal economic activity to continue without the disruption of social distancing restrictions.
Consumer sentiment is expected to improve at an average annual rate of 4.8 index points over the five years through 2025-26, to reach 124.8 index points. The rebound in consumer sentiment is forecast to be driven by growth in household incomes, as well as the resumption of international travel with other countries that have achieved near-elimination of COVID-19.
Although business confidence in New Zealand is expected to improve by 15.6 index points in 2020-21, it will remain negative overall at -22.8 index points. This represents the fourth straight year that business confidence in New Zealand has been negative. Notably, the expected level of business confidence in the current year is more optimistic than in 2018-19, when weak commercial and residential construction placed downward pressure on confidence.
In 2021-22, business confidence is expected to increase by 26.4 index points, returning to positive territory. New Zealand’s fast recovery from the COVID-19 pandemic, in combination with an overall improvement in global economic activity, is expected to drive stronger business investment. However, certain industries are likely to continue placing downward pressure on business confidence. In particular, tourism activity in New Zealand is unlikely to reach pre-COVID levels for several years, constraining tourism, hospitality and retail firms. Over the next five years, business confidence is expected to increase at an average annual rate of 7.7 index points, to average 15.7 index points.
The cash rate in New Zealand has decreased to a historic low of 0.25% in 2020-21, a decline of 0.88 percentage points from 2019-20. The cash rate in New Zealand has fallen to this low following the outbreak of COVID-19 and unprecedented monetary stimulus. In addition to cutting the cash rate, the Reserve Bank of New Zealand has also introduced a government bond purchasing scheme via the Large Scale Asset Purchase program.
In 2021-22, New Zealand is expected to become one of the few countries to implement negative interest rates. The cash rate is expected to decline by 0.63 percentage points, to -0.38%. A negative cash rate is expected to provide stimulus through reduced borrowing costs for consumers and businesses, while also helping to weaken the New Zealand dollar to support export-oriented industries.
Over the next five years, the cash rate is expected to rise at an annualized 0.07 percentage points, to reach 0.58% in 2025-26. Negative interest rates are expected to persist until 2023-24. Furthermore, the Reserve Bank of New Zealand is unlikely to significantly raise the cash rate until a sustained rebound in inflation and unemployment has been achieved.
Real household discretionary income
Real household discretionary income in New Zealand is expected to decline by 6.4% in 2020-21, to $57.3 billion. A spike in unemployment has been the primary driver of this decline. However, the decline has been partly mitigated by a significant reduction in the Official Cash Rate, which has reduced mortgage repayment expenses. Significant fiscal stimulus, including wage subsidies, has also supported household incomes.
In 2021-22, household discretionary incomes are expected to rise by 5.2%, to reach $60.3 billion. New Zealand has outperformed other developed nations in its containment of COVID-19, enabling a resumption of most economic activity and a faster rebound in household incomes. Over the next five years, real household discretionary income is expected to grow at a compound annual rate of 2.9%, to reach $66.2 billion. Total household discretionary income is expected to grow beyond the peak of 2019-20 by 2022-23.
Fiscal support and stimulus measures
New Zealand introduced a range of economic support policies in response to the COVID-19 pandemic, including wage subsidies, income-relief payments for the newly unemployed, subsidised workplace leave support, short-term business loans, interest-free loans for SMEs, insolvency relief and deferred taxation. An income support package worth $2.8 billion has been provided to the most vulnerable, including an ongoing $25.0 per week increase in benefit payments and a doubling of the Winter Energy Payment in 2020.
In October 2020, Jacinda Ardern led the New Zealand Labour Party to a historic victory, achieving majority control of the parliament for the first time since 1996. Amid the ongoing COVID-19 pandemic globally, the Ardern Government is expected to continue several major stimulus measures. Labour has announced a range of policies targeted specifically towards SMEs, which account for 28.0% of New Zealand’s GDP and employ over 600,000 people. The Small Business Cashflow Scheme, which provides low-interest financing for businesses, will be extended by three years. By the first week of September 2020, approximately 94,500 SMEs had used this scheme to borrow almost $1.6 billion. The average loan was close to $16,500, and most of these SMEs employed five or fewer staff. Labour has also announced plans to transition the Small Business Cashflow Scheme into a permanent micro-finance initiative.
The Ardern Government has also pledged to provide a business subsidy of $7,500 on average, and up to $22,000, to hire unemployed New Zealanders. Businesses will have to prove that the job is sustainable, and will only receive the payment once the person has been employed for six weeks. Labour will also increase the minimum wage to $20.0 per hour in 2021.
Over $5.0 billion in new infrastructure funding has been announced, including $1.2 billion for projects to be commenced within 18 months. The Ardern Government has sought to fast-track project approvals in order to drive a rebound in employment and demand across the construction sector. Labour has highlighted six key growth regions to be the focus for infrastructure funding through the New Zealand Upgrade programme. These regions include Auckland, Waikato, Bay of Plenty, Wellington, Canterbury and Queenstown.
The COVID-19 pandemic has significantly affected operators in the Advertising and Market Research Services industry. Restrictions on movement and gatherings introduced to limit the virus’s transmission, including a near-total ban on international travel, have caused economic activity to decline. Reduced employment and consumption across the economy have led to lower demand for advertising services. Furthermore, deteriorating business sentiment and consumer sentiment have led many firms to substantially reduce their advertising and market research budgets, limiting demand for industry services. As a result, industry revenue is expected to decline by 9.1% in 2020-21, to $2.1 billion.
Industry revenue is anticipated to rise by 7.5% in 2021-22, to $2.3 billion, as improving economic conditions and consumer sentiment encourage businesses to increase their spending on advertising and market research. In particular, New Zealand’s success in suppressing the COVID-19 pandemic is forecast to support industry revenue growth, as economic activity can continue without significant restrictions. While the risk of future outbreaks remains, the prior success of New Zealand’s tracing and suppression methods indicates that any reintroduction of restrictions would likely be limited.
The Kiwifruit and Berry Growing industry has performed strongly over the past five years. This is expected to continue in 2021-22, with forecast growth of 6.5%, to reach $2.5 billion. Over 95% of revenue is generated from the growing and harvesting of kiwifruit, most of which is exported around the world. Kiwifruit is one the largest horticultural crops in New Zealand. China is the largest market for New Zealand-grown kiwifruit. Demand was not significantly affected during the height of the COVID-19 outbreak in China at the start of 2020, and consumer demand there is expected to continue to grow strongly during 2021-22. The industry is also expected to continue benefiting from the elevated prices it has recorded over the past five years.
However, a shortfall in employment during the harvest season could affect output. Berry and kiwifruit growers strongly rely on overseas seasonal workers. While the New Zealand Government has allowed overseas workers already in the country to extend their visas, the current border restrictions do not provide exemptions for workers under the Registered Seasonal Employment (RSE) scheme to enter the country. The 2021-22 kiwifruit harvest begins in March 2021. If farmers are unable to fill jobs usually accounted for under the RSE scheme then output and revenue could be compromised.
The Furniture Retailing industry is projected to grow by 6.1% in 2021-22, to reach $1.0 billion. The projected economic recovery from the COVID-19 pandemic is anticipated to lead to strong growth in consumer sentiment and real household discretionary income, boosting consumers’ willingness to spend on furniture products. In addition, capital expenditure on residential buildings is forecast to rise. This trend tends to benefit the industry, as consumers generally require new furniture for new or newly renovated spaces.
Many bricks-and-mortar retailers are expected to establish ecommerce platforms over the two years through 2021-22, as the COVID-19 pandemic has significantly boosted consumers’ uptake of online shopping. Consequently, industry firms with ecommerce platforms that can leverage strong brand names and fast delivery times are likely to be better able to compete with online-only operators. Consumers are also anticipated to become more confident about in-store shopping over the next year, compared with periods in 2020-21 when concerns regarding COVID-19 were higher.
The value of the New Zealand dollar is forecast to appreciate in 2021-22, making imported products comparatively cheaper. This trend is projected to reduce purchase costs, as many industry firms source their products from overseas. Consequently, industry profitability is projected to improve slightly. However, price competition, especially from online-only retailers with lower overhead costs, is forecast to remain significant.
The performance of the Electricity Retailing industry is expected to improve over 2021-22, largely as a result of the forecast recovery in the wider economy over the year, following the negative impacts of the COVID-19 pandemic. The outbreak of the COVID-19 pandemic in early 2020 drove a sharp decline in industry revenue over 2020-21. As the economy recovers from the pandemic, demand from commercial and manufacturing markets is forecast to pick up, driving an increase in demand for electricity. Additionally, the expected reopening of New Zealand’s borders during the 2021-22 financial year is anticipated to support a recovery in net migration, driving an increase in the New Zealand population, and further contributing to industry revenue growth.
The Electricity Retailing industry is also expected to benefit from changing trends in electricity consumption. Net energy consumption is forecast to rise strongly over 2021-22, supporting an improvement in demand conditions and driving growth in wholesale prices. However, the growing adoption of small-scale household solar panel systems is expected to limit this growth. Overall, industry revenue is expected to rise by 4.7% in 2021-22, to a total of $7.1 billion.
The Health Insurance industry is expected to grow by 3.3% in 2021-22, to $1.7 billion. Private health insurance in New Zealand is supported by employment levels, as it is subsidised by employers. While the negative economic effects of the COVID-19 pandemic are projected to extend into early 2021-22, the New Zealand economy is expected to gradually recover, boosting participation in the labour market. This trend is expected to support the uptake of private health insurance.
As the economy is expected to recover from the pandemic, premiums are anticipated to increase over the next five years as health insurers seek to cover rising costs, supporting industry revenue growth. A larger population aged 50 and over is also forecast to generate greater demand for health insurance services, while young professionals and families are likely to increasingly take up health insurance through group health plans provided by employers. However, rising premiums are expected to limit growth, as some younger policyholders see less value in private health insurance. Private health expenditure is anticipated to grow and become an increasingly important source of funding for New Zealand's health system over the period, particularly as demand rises for health care and social assistance.
The Institutional Building Construction industry is forecast to contract by 4.3% in 2021-22, to $3.5 billion. This follows on from a sharp contraction in the previous year as the New Zealand economy slipped into recession following the outbreak of the COVID-19 pandemic. In addition to the economic fallout from the pandemic, the industry’s performance is likely to be dampened by the refocusing of government spending towards infrastructure funding, such as the $6.8 billion New Zealand Upgrade Programme, to support general economic expansion. Private investment in institutional building projects under Public-Private-Partnership (PPP) arrangements is expected to fall over the short term due to the diminished capacity for developers to secure funding.
The anticipated slowdown in population growth since the outbreak of COVID-19 is likely to dilute the underlying demand for the construction of schools, kindergartens and other institutional buildings. Demand is also expected to ease following the completion of major institutional building projects in recent years. This includes the Acute Services Building in the Christchurch Hospital redevelopment, Building C of the Mt Eden Corrections Facility and the New Zealand International Convention Centre (NZICC) in Auckland.
The Architectural Aluminium Product Manufacturing industry is forecast to fall by 2.7% in 2021-22, to $1.4 billion. The ongoing effects of the COVID-19 pandemic are projected to constrain demand for architectural aluminium products in 2021-22. Demand from the non-residential property market is anticipated to fall in 2021-22 as businesses are likely to continue to adopt more flexible work-from-home arrangements and greater dependence on online shopping channels. Weak demand from commercial and industrial building markets is expected to put downward pressure on sales of commercial window systems, shopfronts and aluminium curtain walls.
The recovery in residential construction activity is expected to be slow in 2021-22, constraining demand for domestic window and door systems, aluminium garage doors, spouting and guttering systems. The national unemployment rate is projected to stay high and net migration is expected to remain low in 2021-22, which is likely to take demand pressure out of the housing market. However, population growth, a recovery in household disposable income and a low interest rate environment are anticipated to support a recovery in underlying demand for residential property and investment, placing upward pressure on demand for industry products in 2021-22. Additionally, a continued shortage in the supply of housing in New Zealand is expected to support a slight uptick in new dwelling consents issued in 2021-22, which will likely limit the overall decline in industry demand.
While revenue for the Personal Welfare Services industry in New Zealand is anticipated to fall by 2.6% over 2021-22, it is expected to remain relatively high compared to the previous decade. The anticipated revenue decline is primarily due to the COVID-19 pandemic contributing to record highs in revenue during 2020-21. Economic and social trends influence the industry. Declining economic activity and a rising unemployment rate tend to boost demand for industry services, as more people require financial assistance to support themselves. Rising demand for social support from areas such as aged-care and disability assistance also boost industry demand. During 2021-22, the consumer sentiment index is expected to increase and remain positive, household discretionary and disposable incomes are forecast to rise and the national unemployment rate is projected to fall. These factors are all likely to reduce demand for personal welfare services, as more New Zealanders will be able to live without support mechanisms. However, the fall in demand is projected to be mostly offset by continued demand from family and child welfare services, New Zealand’s aging population and the New Zealand Government’s Wellbeing Budget 2020, which will provide continued support to those most affected by the COVID-19 pandemic. For example, government expenditure on aged care services and demand from aged care services are forecast to rise during 2021-22.
Revenue in the Hardware Wholesaling industry is forecast to increase by 1.0% in 2021-22, to $4.3 billion. The industry is anticipated to recover from the effects of the COVID-19 pandemic at a much slower pace compared to the overall economy. Most non-residential building projects that were postponed or delayed due to the pandemic are projected to resume in 2021-22, supporting industry demand. However, constrained activity in house construction, due to rising house prices, is anticipated to weigh on sales of hardware and building products. The recovery of real household discretionary income is expected to allow homeowners more spending power for discretionary activities. However, in a post-COVID-19 environment, consumers are anticipated to be cautious with their spending, particularly on major home renovation and maintenance projects. The pandemic had led to New Zealand entering a recession for the first time in a decade. Historically, consumer spending on hardware, building and garden supplies had fallen significantly over the two years through 2009-10 (following the 2008 recession). Similarly, industry revenue is anticipated to remain subdued in the aftermath of the outbreak.
The COVID-19 pandemic has fuelled a shift towards online shopping, with several operators offering click-and-collect and home delivery services to retain demand during the lockdown period. For instance, major player Bunnings implemented an accelerated rollout of its online operations to generate sales in 2020-21. However, the adoption of online distribution channels is expected to be asymmetrical across the industry due to slower uptake among most players.
The Accounting Services industry is forecast to rise by a modest 1.8% in 2021-22. This growth is weaker relative to most other industries in New Zealand, which indicates accountants are likely to recover from the COVID-19 pandemic at a slower rate than the broader economy. For example, New Zealand’s real GDP growth is anticipated to be 5.7% in 2021-22, significantly outpacing the Accounting Services industry.
The slow recovery is partly due to the Accounting Services industry being relatively protected from the COVID-19 pandemic compared to other professional, scientific and technical service industries. For example, revenue in the Architectural and Design Services industry fell by 7.4% in 2020-21, while the Legal Services industry declined by 8.1%. Comparatively, the Accounting Services industry fell by 5.6%. This trend is due to some services that accountants provide being essential during economic downturns, as clients still require accountants to prepare financial statements, and for advice on how to manage their financial position. Due to continued demand throughout the pandemic, the Accounting Services industry is expected to recover relatively slowly over 2021-22. Growth will likely be derived from an increase in high-value services, as businesses are more likely to undertake expansionary activities, due to a forecast rise in private capital expenditure and business confidence.