### Summary
The removal of Covid-19 restrictions in New Zealand has had significant effects on the economy, including high house prices, increased debt, and inflation, although unemployment has decreased.
### Facts
- 🏠 House prices, despite a decrease from their 2021 peak, are still nearly $200,000 higher than in 2019 due to low interest rates during the pandemic period.
- 👥 Unemployment has decreased, but government debt has significantly increased.
- 📈 Inflation, measured in both the consumer price index and the food price index, has soared.
- 🪂 Tourism has recovered to about 75% of pre-Covid levels, and migrants have returned in large numbers.
- 💼 The economy has held up better than expected in 2020, with a sharp contraction during lockdowns followed by a quick bounce back.
- 🔬 Covid has accelerated the use of technology, condensing five years of progress into a short time period.
- 💰 Despite positive macroeconomic data, people's household finances have been impacted, with increased spending on essentials and adjusted wage increases that do not keep up with inflation.
- 💸 Government spending has increased and is projected to remain high, despite most Covid-related spending being finished.
- 📉 Government revenue as a proportion of GDP is forecasted to be higher than expected in 2019, leading to a larger pot of money for looser expenditure.
Please note that some information in the text may be subjective or based on the opinions of economists.
Britain's experience with quantitative easing (QE) and monetary policy has had both positive and negative impacts, with the unnecessary prolonged period of cheap money causing damage, the kamikaze printing of money during the pandemic feeding inflation and leaving taxpayers with a large bill, but also some good news as inflation is expected to decelerate and boost spending power as real incomes rise, although second-round effects could ensure inflation's persistence. The UK economy is weak and policy should focus on averting recession and challenging consensus-thinking on future growth, as the country's composite Purchasing Managers Index (PMI) has fallen to a 31-month low, with the services sector slipping into recession and a slump in retail sales in August. Higher interest rates are causing corporate distress, suggesting the need to stop raising rates, while elevated policy rates and selling of gilts by the Bank of England will keep upward pressure on long-term yields and borrowing and mortgage rates. The expectation of positive real interest rates signals the end of cheap money and offers an opportunity in Britain to rethink fiscal and supply-side policy, encouraging investment, innovation, competitiveness, and improved skills. Overall, the outlook is characterized by falling inflation, weak growth, and the opportunity to reset monetary policy and focus on fiscal policy, the supply side, and investment.
Surging interest rates in the UK have led to a slump in factory output, the biggest annual drop in house prices since the global financial crisis, and signals of distress in different sectors of the economy, posing a dilemma for the Bank of England as it decides whether to raise interest rates further.
The UK economy has recovered more quickly from the pandemic than previously thought, outperforming Germany and other major Western industrial nations, although it still lags behind the G7 average, and there are concerns about the potential for a recession due to manufacturing struggles, sliding house prices, inflation, and strikes.
The UK economy recovered from the Covid-19 pandemic faster than previously thought, with revised data showing that UK GDP was actually 0.6% larger by the end of 2021 than in the final quarter of 2019, erasing Britain's laggard status; however, economists caution that this stronger data does not change the overall outlook for Britain's growth or provide relief to households facing high inflation and rising borrowing costs.
Revisions to economic data by the Office for National Statistics (ONS) have revealed that the UK economy was 0.6% larger at the end of 2021 than previously estimated, improving the country's performance relative to its peers in the G7. The revisions also highlight the impact of stockpiling in 2020 and indicate stronger growth in 2021, particularly in sectors such as wholesale trade and health services. However, while the revisions provide a more positive outlook, the UK's economic narrative remains relatively mediocre compared to pre-pandemic levels.
Australia's economy grew more than expected in the second quarter, driven by exports and investment, while household consumption remained weak due to high interest rates; however, productivity and rising labor costs remain concerns for the Reserve Bank of Australia.
Australia's economy is experiencing a per capita recession, with a drop in GDP per capita for the second consecutive quarter, driven by weak household spending and reliance on government spending and population growth.
UK gross domestic product (GDP) fell by 0.5% in July, below expectations, with services output being the main drag on the economy, indicating a potential mild recession, and causing investment banks to revise down their growth forecasts; however, some experts still believe that the economy is growing, albeit at a slower pace.
Ahead of New Zealand's official GDP data release, the New Zealand Institute of Economic Research forecasts a slowdown in GDP growth and higher inflation, causing the NZD/USD to pare back gains.
New Zealand's economy grew more than expected in Q2 2023, driven by the services sector, potentially causing concerns for the central bank and leading to longer-than-anticipated high interest rates, according to economists.
The UK economy is predicted to continue its stagnant state in 2024, with some economists and business groups even foreseeing a recession, while others, including the Bank of England, the IMF, and the OECD, anticipate modest growth despite high interest rates and a slowing global economic outlook. Different factors, such as labor hoarding and regions bucking the trend, complicate the overall picture, but overall, a stagnant or minimally growing economy seems likely.
Experts are divided on whether interest rates in New Zealand will continue to rise or have already peaked, with some forecasting a further increase to 6% while others believe rates will remain stagnant or even decrease in the future.
The Federal Reserve's forecast for the U.S. economy shows that while inflation and unemployment are close to their goals, economic growth will remain weak, primarily due to low labor productivity.
The UK economy has performed better than previously estimated during the COVID-19 pandemic, with growth outpacing Germany and France but lagging behind the US, according to revised official data, although households are still facing cost of living pressures.
The Reserve Bank of New Zealand (RBNZ) kept interest rates steady at 5.5% and expressed confidence that past rate hikes were effective in reducing inflation, leading to a decline in the New Zealand dollar and a decrease in expectations of further tightening.
Despite positive economic indicators such as job growth and low unemployment, the perception of a healthy economy is overshadowed by the high cost of living, including inflation, rising housing prices, and increased interest rates.
New Zealand's major parties are promising cost-of-living relief to voters in the upcoming general election, but they face challenges due to the central bank's insistence on high borrowing costs and subdued growth to control inflation, as well as a deficit, high rents, unaffordable housing, a weakening labor market, and an impending recession.
The UK economy's marginal growth in August has led to expectations that interest rates will remain unchanged next month, with analysts describing the figures as lacklustre and warning of the negative impact of higher borrowing costs and the higher cost of living on consumers and businesses. The economy is currently not in recession but concerns over weak growth persist, making it a key issue in the upcoming election.
A lower-spending National/ACT government is expected to moderate inflation in New Zealand, but economists caution that it won't be a cure-all for the economy.
Headline inflation is expected to have eased in September, while pay growth is slowing, with economists predicting that annual inflation fell slightly to 6.5% from 6.7% in August, although it still remains well above the Bank of England's 2% target, and the jobs market weakening and reducing the need for employers to increase wages.
Economists are predicting that the U.S. economy is less likely to experience a recession in the next year, with the likelihood dropping below 50% for the first time since last year, thanks to factors such as falling inflation, the Federal Reserve halting interest rate hikes, and a strong labor market.
Despite high interest rates and sluggish GDP growth, analysts predict that the UK will avoid a recession due to a likely end to rate increases, falling inflation, and a return to real pay growth.
Economists warn that Britain's economy will grow less than expected next year due to the impact of higher interest rates and a weaker labor market, with GDP growth expected to be 0.7% in 2024. However, EY upgraded its GDP growth forecast for 2023 to 0.6%, citing an end to interest rate increases, falling inflation, and a return to real wage growth as factors that should prevent a recession. Inflation is expected to fall faster than previously forecast, reaching 4.5% by the end of the year before hitting the Bank of England's 2% target in the second half of 2024.
New Zealand's inflation rate slowed more than expected in Q3, indicating that the country's central bank may have reached the end of its tightening cycle.
Economists have raised their US growth projections and reduced recession odds to a one-year low due to strong consumer spending supported by a still-robust labor market, despite high borrowing costs and inflation.
