New Zealand Economy Accelerated in 2Q But Now Faces Lockdown Setback -- Update

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By Stephen Wright

WELLINGTON, New Zealand--New Zealand's economy accelerated in the second quarter, but faces a setback from a Covid-19 outbreak that has shuttered the country's largest city.

The economy grew 2.8% from the first quarter after a revised 1.4% increase in January-March, underpinned by higher government spending, record low interest rates and fast-rising house prices. The median forecast in a Wall Street Journal survey was for growth of 1.1% percent.

Analysts say the economy is likely to contract in the July-September quarter as Auckland, the largest city, has been in strict lockdown since Aug. 18 in response to New Zealand's first Covid outbreak since February.

However, they also expect the Reserve Bank of New Zealand to raise its cash rate from a record-low 0.25% in October as inflation is on the rise, spurred by stimulus policies, labor shortages and global shipping congestion -- all brought on by the pandemic. The stronger-than-expected growth in the April-June quarter is likely to reinforce expectations for RBNZ rate increases.

The economy was 17.4% larger in the second quarter compared with a year earlier when New Zealand's first lockdown of the pandemic caused a record contraction.

New Zealand has had few Covid-19 cases, helped by its island geography, a border closure and a government policy of stamping out any outbreaks with strict lockdowns, but has lagged in vaccinations. High public support for the so-called Covid-19 elimination strategy has shown signs of waning during the current lockdown.

A sizeable contraction is looming for the economy in the July-September quarter, but it should bounce back in the last months of the year, ASB said in a report.

"We are hoping that the current community outbreak in Auckland is contained, setting the scene for a swift fourth quarter bounce in GDP," the bank said.

Write to Stephen Wright at stephen.wright@wsj.com


  (END) Dow Jones Newswires
  09-15-21 2015ET
  Copyright (c) 2021 Dow Jones & Company, Inc.

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