OECD: NZ a strong performer but vaccine action needed
Monday, 31 May 2021
New Zealand needs to speed up its rate of vaccination to reduce the risk of new Covid-19 outbreaks and allow the border to reopen next year, the OECD says.
Its latest Economic Outlook forecasts New Zealand’s GDP growth pulling ahead of many other OECD countries over the coming two years.
It said real GDP was already ahead of pre-Covid-19 levels.
By the end of 2022, the 3.8 per cent annual growth rate forecast would put it ahead of Australia, forecast to reach 3.4 per cent, Japan, set to reach 2 per cent, and the United States at 3.6 per cent.
It would be level with Canada.
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The report said the economy would be boosted by a progressive reopening of the border, and full opening by early 2022. That would allow the return of international tourism, which was previously 20 per cent of exports.
Domestic consumption was likely to stay robust, supported by the increase of the minimum wage and high house prices.
“Inflation pressure will strengthen as economic slack disappears by end-2022.”
But it said there were risks, and the vaccination programme needed to move faster. It noted that as of May 11, only 5 per cent of the population had one vaccine dose and only 2 per cent had two.
The Government also needed to strengthen income support and training during job transitions and enhance the reallocation of workers to high-growth sectors and away from the industries that remained struggling.
“The main downside risk is that the full opening of the border is pushed back, for instance due to a significant delay in vaccination of the adult domestic population or the emergence of new Covid-19 variants that diminishes vaccination effectiveness.
“Another downside risk is that an unanticipated increase in interest rates and/or unemployment could have a large negative effect on private consumption owing to the high level of household debt – equivalent to 166 per cent of household income at end-2020. However, stronger-than-foreseen global demand for New Zealand’s agricultural products may boost export growth more than projected.”
It said housing supply also needed to be increased by removing construction bottlenecks, including the inability of local governments to finance the infrastructure required.
“Increasing the supply of affordable housing is crucial for improving well-being, both by reducing housing costs and facilitating worker mobility to regions where high-growth sectors are located. Increasing support for investment in low-carbon technologies, the diffusion of electric vehicles and housing insulation together with investments to improve public transport, as planned, would help build back a better economy.”
Finance Minister Grant Robertson welcomed the OECD recognition of New Zealand as one of the stronger performers, “with a robust rebound due to our swift and decisive response to eliminate the virus and support households and businesses”.
Its forecasts were in line with Budget projections.
“Economic volatility is a global risk and New Zealand is not immune. There are still challenges ahead but we are in a good position to handle them,” Robertson said.
“The report is consistent with the Government’s balanced approach, keeping a lid on debt while targeting support to where it’s needed most to tackle long-standing issues around climate change, housing and child wellbeing.”
He said the Government was already addressing some of the issues highlighted, with measures to tackle the housing market, skills and training initiatives and the NZ Green Investment FInance Scheme to accelerate investment in low-carbon technology.