New Zealand is slowly moving from the response to the recovery phase of the COVID-19 pandemic. This shift in focus means we’re trying to understand what New Zealand’s recovery path might look like, and where job opportunities might be five years from now. In an earlier article, we looked at industry-level job losses in the short term to March 2021.
Although this recovery will be undoubtably slow, New Zealand’s rapid health response has set the economy up as best as possible. Now, we must maintain the vigilance at our borders and light a fire under business development.
The recovery will take an extended period
Although New Zealand has moved to Alert Level 1, the economy still faces a tough path ahead. Job losses continue to mount, with nearly 54,000 more people accessing government benefits since 20 March. Our expectations are that it will take until the March 2024 year before job numbers rise above their pre-pandemic levels (see Chart 1).
With the move down the Alert Levels and a sense of normalcy returning, there’s been an improved view of the economy recently. However, lower levels of business activity, hiring, and investment will mean surviving businesses will still struggle to grow over the next 18 months. Subdued consumer confidence, and lower household budgets, will restrict spending activity as well. It’s true that the economy is starting to recover, but it’s equally important to highlight that this economic downturn will not be quick to recover from.
At present, the risk of a second wave of COVID-19, both domestically and globally continues to rise and weigh on businesses. Although a second wave domestically is not within our central expectations yet, any wider outbreak of COVID-19, and attempts by the government to contain another outbreak, would be devastating for businesses and household. Getting our border protections right, and maintaining our community-transmission free status, is critical.
Not all industries will recover the same
This slow profile for recovery will see industries emerge in 2025 in various states (see Chart 2). Although our current forecasts are still very preliminary, they do give an early guide to our thinking about how the recovery might play out. Some industries, like professional, scientific and technical services, public administration and safety, and administrative and support services, are currently expected to be 6% larger than pre-pandemic in 2025. This growth is driven by returning business activity and a focus on increased services spending amid a reimagination of the way business operates.
Other industries, like manufacturing-based activities and construction are at this stage forecast to employ around 3-4% more people in 2025 than in 2020. This slower recovery is due to the larger hit to jobs during the downturn, with a greater proportion of lost jobs than need to be made up again by 2025.
Education and training and agriculture, forestry, and fishing industries will show some, but not substantial growth. Changes to how both industries operate, alongside changes to the mix of capital and labour needed for operations, drives this change.
Some of the most-affected industries still won’t have recovered within 5 years. We currently expect retail trade employment will be just shy of its 2020 levels by 2025, with accommodation and food services only at 94% of pre-pandemic employment. A small and slow to recover tourism sector drives this activity. Finally, information media and telecommunications will likely see a much larger pivot to capital investment and therefore lower job needs, as well as lower revenue still limiting recovery.
Speed and agility needed, not dithering
Achieving job growth and rebuilding the New Zealand economy will be determined by the settings that government provides. Businesses might have views on government policy decisions, but at the end of the day businesses know that they operate within the rules.
With around $20b in funding from the COVID-19 Response and Recovery Fund (CRRF) still to be allocated by Finance Minister Grant Robertson, planning and criteria becomes important. At present, there doesn’t seem to be a clear, comprehensive, and cohesive plan moving forward on how, and where, this funding may be spent
Some sectors are also still waiting on announcements that seem to have been forgotten.
International education, which is a billion-dollar industry, has been trying for some time to reach an agreement for a safe pathway for international students to enter New Zealand. Yet too much dithering by government means that the first-mover advantage for international education has been lost. Australia is working to bring in at least 350 students in July as part of a pilot programme to restart the sector, after a period of mandatory quarantine. Meanwhile, New Zealand continues to be silent on any future moves.
The construction sector is also still in limbo, with a need to get going to both improve New Zealand’s foundations but also keep our larger construction workforce employed. Investment announcements that many expected by the end of May seem to be continually deferred. Many in the sector are sorted with work for the next few months, but there’s still considerable unease about how much, and what sorts, of work will be seen in coming years. Announcements are needed in the next few days and weeks, not months, to give the sector the confidence to retain staff.
The pandemic still threatens, and we’re in it for the long haul
Recent developments overseas and domestically underscore that our borders will be essentially shut for an extended period. Australia has conceded that even a trans-Tasman bubble looks to be coming in 2021 at the earliest.
Rising global cases threaten to pull down global economic activity even further, which will limit our export earnings and will keep hitting global supply chains.
New Zealand, and the world, isn’t out of the woods yet. With the economic downturn set to be sustained for an extended period, it’s time to plan to we keep our domestic economy moving as quickly as possible, while keeping an eye on international developments.
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