New Zealand is experiencing an economic downturn despite success on the health front. The measures taken to curb and curtail the spread of COVID 19 have led to labor shortages in different sectors of the economy. This is in turn leading to inflation. The Prime Minister has promised to address the issue this week.
New Zealand Success in Containing COVID 19
The current administration employed an elimination plan in which rigid lockdown measures were implemented to prevent entry or exit into New Zealand. The government also strengthened the economy through significant wage subsidies, in addition to the NZD 100 billion stimulus project invested by RBNZ (Reserve Bank of New Zealand).
This helped the country reduce the total number of infection cases to approximately 2,500, and the fatality rate to just 26. This was a huge success and a boost to the economy in comparison with other countries.
The Downside of the Lockdown Strategy for the Economy
The New Zealand economy, which relies much on labor from abroad, has now been forced to depend on its resources, which are less in quality and much more in quantity. There appear to be many more jobs than employees, and employers have to pay more to keep them at work.
The business sectors have announced a depleted labor pool. The hospitality organizations are on strike to bring the government’s attention to their plight, just as in the health sector. It is reported that over 1,500 hospital workers are on strike for increased pay and better working conditions. Many more health workers are set to follow this example by month’s end.
The inflation rate has been pushed high beyond the forecast of the central bank. It currently stands at 3.3%.
Jacinda Ardern Plan a Public Address on the Economic Situation on Thursday
Prime Minister Jacinda Ardern has remained cautious, especially with the new wave of the Delta variant of the COVID 19. This is heightened by the fact that neighboring Australia is being ravaged by it. The entry of the Delta variant might lead to even stricter lockdown restrictions, especially with only about 21% of the citizens having received full vaccinations.
Arden has indicated that she will address the public on Thursday to speak about the situation and unfold her 6-month plan to handle the situation.
The Economic Impact on the New Zealand Dollar
It is believed that the RBNZ will be pressured by this current situation to adjust its monetary policies so as not to overshoot the already bulging inflation rate. They might have to pull back on the stimulus package being handed out, as it has increased inequality among citizens and led to a housing crisis.
The New Zealand Dollar might keep depreciating as a result of the increased inflation rate if appropriate actions and reactions are not taken.
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