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Reading the tea leaves

On 20 February New Zealand commenced COVID vaccinations, starting with border workers. Key groups such as front-line workers will progressively be vaccinated in March/April, while the remainder of the population will start in May through to July. Globally, the number of shots administered now exceeds 400m and is growing at some 10 million per day.

With vaccinations now being undertaken in a serious way, the tantalising prospect of “normality” beckons. This article speculates as to some of the economic and social possibilities which await, as we collectively dust ourselves off and find our feet.

Reading the tea leaves economic forecasting

A Spending Boom?

A clear possibility when considering the nature of COVID and looking at the numbers. Due to a combination of economic anxiety and the effect of lockdowns, people haven’t spent as much during COVID – leading to “pent up demand” for certain goods and services (especially travel), but also higher savings. Of course, this won’t apply to everyone, there are those who lost their jobs through COVID who could have burnt through savings, but the RBNZ term deposit data is clear. We estimate New Zealand households have an extra $5 billion in extra savings (measured based on term deposits), compared to if COVID had not occurred. That is a lot of financial firepower ($1,000 each for the team of 5 million), and indicative of the magnitude of “unspent” dollars sitting on household balance sheets, waiting to be deployed.

Extra household savings during COVID-19

RBNZ Household Term Deposit Data. “Extra savings” is calculated by extrapolating on the trend seen in the five years prior to January 2020 and comparing it to what happened

Added to higher liquid savings, households have also benefited from rising house prices and stock markets through 2020, alongside lower interest rates on refinanced debt. Taken all together, some consumers may find themselves feeling particularly flush and better about the world as 2021 rolls on, encouraging looser purse strings.

Recovery in Tourism?

Of course, this is an obvious one, but we thought it would be interesting to analyse the numbers and consider the possibilities. As shown in the chart below, New Zealand has on average just over 3m visitors per year, over the ten years prior to COVID.

Historic tourism numbers New Zealand

Statistics NZ, International Travel Statistics

Contrast that typical 3m figure, with the 600k who actually visited New Zealand in the 12 months prior to January 2021, and you get perhaps 2.4m (or more) people who probably would have liked to visit New Zealand until destiny made other plans. For how many of these people were New Zealand on their bucket list? The once-in-a-lifetime trip for which they had planned many years? Perhaps a large number, given that apart from 25m Australians, New Zealand is among the more difficult destinations to get to, requiring a reasonable amount of planning and mental energy. If this is true could we see a far above normal number of visits in New Zealand come late 2022-2023 as the situation becomes more normal?

Seems feasible, a mid-2020 study from Trip Advisor, found that New Zealand was among the first markets to see a resurgence in interest in hotels and restaurants. Having been cooped up for much of 2020, Europeans and Americans may decide that 100% Pure New Zealand, far away at the bottom of the world, is the place they want to go to. Furthermore, given that in Europe & North America lockdowns have often been far more prolonged (seeing higher growth in household savings than in NZ), these prospective travellers will have plenty of financial firepower to go on longer, high spending trips. How equipped New Zealand’s tourism industry would be to handle a resurgence in demand remains to be seen, but that is a problem for another article.

Redistribution of the population?

For most of the past 20-30 years, population growth in Auckland has been higher than that of the rest of the country. This trend has slowed in the past five years, even reversing in 2019, but nonetheless has been rather persistent.

NZ population growth, Auckland compared to rest of New Zealand

Statistics NZ. Subnational Population Estimates

The figures reflect Auckland’s status as the international gateway to New Zealand and the commercial hub for the country. The Super City has historically received a higher proportion of immigrants, experienced higher job growth, and generated greater growth in gross domestic product, than the rest of New Zealand.

Regional GDP in New Zealand

Statistics NZ, New Zealand’s regional economies 2019

But how could this change in the tech-enabled post-COVID world? COVID has shown that in many industries, people can work from just about anywhere, provided they have a stable internet connection. From a lifestyle perspective, Auckland has drawbacks, with high house prices and longer commute times on average than the rest of New Zealand. Could working from home give people the chance to leave the Big City in favour of a more relaxed pace of life elsewhere? Current house sales volumes suggest Auckland remains popular, but lifestyle changes of this magnitude take time to play out.

In this article we speculated on a few of the potential scenarios that return to “normality” could entail. What will recovery in a post-COVID world look like? Of course, no one knows. Many of the effects, long-term and short-term are still “known-unknowns” or “unknown-unknowns”. Whatever recovery looks like, we will be grateful to see the back of 2020.


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