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Birds Eye View

Spring 2022

Special feature: Tourism

0.1 The Front Pages

The high levels of inflation, the growing energy and food crises due to the ongoing war in Ukraine, and the gloomy and uncertain outlook we warned of in the Winter 2022 BEV, has developed into a dark cloud of recession that hangs over New Zealand. Meanwhile, a slowdown in China adds pressure to an already strained global economy.

Inflation remains enemy number one as we head into Christmas. In 2022, inflation in advanced economies reached its highest level since 1982. The price pressures driving global inflation, which many believed would be transitory, are proving stubborn. In New Zealand, after reaching a 32-year high in June, annual inflation remained well above the Reserve Bank target range at 7.2 percent in the 12 months to 30 September.

The International Monetary Fund (IMF) sees increasing price pressures as the most immediate threat to current and future prosperity, by squeezing real incomes and undermining macroeconomic stability. Global inflation is expected to peak in late 2022, and is forecast to rise from 4.7 percent in 2021 to 8.8 percent in 2022, an upward revision of 0.5 percentage points since July. It is then expected to decline to 6.5 percent in 2023 and to 4.1 percent by 2024. 

The IMF’s latest forecasts projected global growth to remain unchanged in 2022 at 3.2 percent. However, the outlook for 2023 has worsened with global GDP growth now expected to slow by a further 0.2 percentage points to just 2.7 percent in 2023, with a 25 percent possibility that it could fall below two percent. This is the IMF’s weakest growth profile since 2001, and is consistent with the OECD’s November Economic Outlook that downgraded its global growth forecast to 2.2 percent in 2023, a decrease of 0.6 percentage points from its April forecast.

With a third of the world economy facing at least two consecutive quarters of negative growth, the IMF expects that more than a third of the global economy will contract this year or next year. The IMF warns that the three largest economies, the United States of America (USA), the European Union (EU), and China, will continue to slow and could potentially stall. In China, frequent lockdowns under its zero COVID policy have taken a toll on the economy.

The property sector, representing about 20 percent of economic activity in China, is rapidly weakening. This has the potential to spill over to the banking sector and further slow growth, with negative cross-border effects. Given the size of China’s economy and its importance to global supply chains, this will weigh heavily on global trade and activity. As the destination for almost a third of New Zealand’s exports in 2021, a significant slowing of China’s economy will certainly be felt in New Zealand. 

The Reserve Bank is engineering a recession 

The persistent and broadening inflation pressures have seen central banks across the world tightening monetary conditions and New Zealand is no exception. In New Zealand, the Reserve Bank has been tightening monetary policy since mid-2021. By increasing the official cash rate (OCR), the Reserve Bank aims to reduce demand so that it better aligns with the economy’s capacity to sustainably supply goods and services. However, the results are not immediate, with a lag of several quarters as households and businesses renew fixed term borrowing at higher rates. Over the coming months, retail banks expect increasing numbers of borrowers will feel the pinch as they come off the low interest rates that were on offer in recent years. In some cases, borrowers will face refixing at rates that are two to three percentage points higher.

The OCR is expected to peak at 5.5 percent next year, and remain at that level for about 15 months before dropping. Using the OCR to control inflation comes at a cost to the economy. During questioning from Parliament’s Finance and Expenditure committee, Reserve Bank Governor Adrian Orr accepted that the central bank was deliberately engineering a recession to get inflation back within its target range (one to three percent). The recession is expected to begin in 2023 and stretch over multiple quarters into 2024. Gross domestic product (GDP) is expected to fall by about one percent, and unemployment is forecast to peak at 5.7 percent in 2025. 

Increasing interest rates could see consumer confidence fall further

From record low consumer confidence in June, the Westpac McDermott Miller Consumer Confidence Index rose 8.9 points in the September quarter to a level of 87.6. However, confidence remains at very low levels, similar to those seen during the recession in the early-1990s and the Global Financial Crisis. Despite low unemployment and positive growth, households are feeling the pressure inflation is putting on essentials like food and rent. This is particularly concerning for those households on lower incomes who tend to spend a greater share of their incomes on these essentials.

In September, a large number of households reported that their financial position had deteriorated over the past year and that they expected their financial position to continue to weaken. Many households also expected that economic conditions more generally will deteriorate over the next few years. The unprecedented increase in the OCR, with further increases on the horizon, global events, and the expectation of a year-long recession are all likely to fuel these fears. It is likely that confidence could fall below its June low in the December quarter. 

Inflation puts the government in a difficult position as it prepares the next budget

The Reserve Bank’s Monetary Policy Committee agreed that fiscal policy can also act to reduce demand in the economy. This puts pressure on the Government as it prepares the final budget of this parliamentary term. This officially began on 14 December with the release of the Half Year Economic and Fiscal Update (HYEFU) and the Budget Policy Statement (BPS). The BPS sets out the Government’s priorities for the Budget and explains the approach being used and the broad parameters within which decisions will be made. The Government will need to balance extra spending, which typically increases in an election year, with the need to limit spending to assist efforts to reduce inflation. 

Fiscal policy’s priority should be the protection of vulnerable groups through targeted short-term support to alleviate the burden of the cost of-living increases. But its overall stance should remain sufficiently tight to keep monetary policy on target. This will require addressing government debt in the face of lower growth and higher borrowing costs. Addressing structural reforms to improve productivity and economic capacity would ease supply constraints, and in doing so would support monetary policy in fighting inflation.

For BERL’s views of the BPS and HYEFU please sign up for the BERL newsletter on our website.
As shown in the forecasts at the end of this Birds Eye View, we continue to expect the economy to face difficult times over the medium term with reduced consumer spending on non-essential items, lower growth, and increasing unemployment. Those businesses hardest hit by COVID-19, including retail, arts and recreation providers, and food and beverage services, will be the first to feel the impacts of increasing interest rates.

2.0 Special feature: Tourism

Traditionally, the arrival of summer also signals the arrival of hundreds of thousands of international visitors to Aotearoa New Zealand’s shores. That was before we were hit by a global pandemic. Unsurprisingly, tourism was the hardest hit industry globally. 

In this issue, we take a look at what tourism in Aotearoa New Zealand looked like pre-pandemic, during the pandemic, and how likely a great tourism transformation actually is. 

What did tourism look like pre-COVID?

The history of tourism in New Zealand stretches as far back as the late 19th Century. The earliest record of international tourists shows that during the year 1903 we had 5,233 overseas visitors, 80 percent of whom were Australian or British. Fast forward to the 21st Century, and our tourism industry looks very different today thanks to globalisation. 

Australia has always been the largest source of visitors to Aotearoa New Zealand. Before COVID, in the year ended September 2019, the top five countries that we hosted visitors from were Australia, China, the USA, the United Kingdom (UK), and Germany. We had over 100,000 visitors respectively from these countries. 

The number of total visitors reached a peak of just under four million in the September 2019 year, after which it fell off a cliff. After two years of sharp declines, the impact of the re-opening of the borders is staring to take effect and visitor numbers were already starting to creep up even before summer started. Australian visitors are clearly lending a massive helping hand to our tourism industry. 

Source: Statistics New Zealand

Naturally, these visitors spent money in Aotearoa New Zealand. In March 2020, international visitors spent an average of $270 per day. There were significant differences by country of origin. Visitors from China spent an average of $402 per night while those from Germany only spent an average of $130 a night.  

International and domestic tourism are extremely important to our economy. Prior to COVID, tourism was our biggest export industry, accounting for a fifth ($17.5 billion) of our goods and service exports in the year to March 2020. The direct contribution of this sector to GDP was 5.5 percent. The sector also contributed an additional 3.8 percent to GDP indirectly. The main industries within the sector contributing to this were retail sales (34.5 percent) and passenger transport (26.3 percent). Domestic tourists contributed more to retail sales than international tourists, while international tourists contributed more to the accommodation, and food and beverage services industries. The sector was also a major employer. Prior to COVID, close to 220,000 people were employed in a tourism-related industry.  

Tourism during COVID-19

The word tourist conjures up images of visitors from overseas in campervans or tour buses. But, during COVID, it was us, domestic tourists, who were propping up the tourism industry. Although domestic tourists did not bring in any new spending into the economy, they did help keep the lights on for tourism providers over the past two years. 

Tourism Industry Aotearoa’s domestic visitor satisfaction survey for the year ended September 2022 indicates that nearly 75 percent of us took a domestic leisure trip during the year. This is largely the same proportion as in the September 2019 year. The average length of these trips was also unchanged before and during COVID (three nights). What did change though was the main reason for the trip. Over the past year, most (53 percent) of us took a trip purely for the purpose of a holiday/short break. Thanks to mobility restrictions, fewer of us were attending events held by family or friends, or other events (festival, concert, or sports). This is expected since less of these events were taking place. 

Where we travelled to also changed. Auckland (23 percent versus 19 percent), Northland (13 percent versus nine percent), and Rotorua (12 percent versus 10 percent) saw fewer domestic travellers between September 2019 and 2022. On the other hand, the share for Queenstown increased from seven percent to 11 percent. 

Unsurprisingly, tourism’s contribution to the economy has fallen drastically. In the year to March 2021, just 2.1 percent of our exports were tourism related, and its direct contribution to GDP dropped to 2.9 percent, while indirect contribution fell to 2.9 percent. Data for the March 2022 year is not yet available but will likely mirror the 2021 numbers. Although retail sales and passenger transport were still the two biggest industries in the sector, expenditure in both fell by 24.8 percent and 55.1 percent respectively. 

Despite government support for wages, the sector shed a third of its direct workforce between March 2020 and 2021. This was despite an increase in the number of people employed in the Aotearoa New Zealand economy overall (1.3 percent). A sudden cut in demand for their goods and services meant that employers were forced to lay staff off, and a significant number of working proprietors also went under.

Source: Statistics New Zealand

What’s next for tourism?

The Ministry of Business, Innovation and Employment (MBIE) has been working on their Tourism Industry Transformation Plan (ITP) over 2022, which will reshape how the Aotearoa tourism industry will function in the years ahead. The ITP exists because tourism will not return to the way it was before. The ITP started with recommendations from the Tourism Futures Taskforce report, We Are Aotearoa. The Taskforce listened to the perspectives of the tourism industry, which were: 

  • Businesses wanted value over volume 
  • There was the belief that international tourists don’t pay their way 
  • There was a perceived infrastructure shortfall because of international tourists 
  • Some thought that international tourists were the cause of safety issues surrounding freedom camping 
  • Tourism was perceived to be a weak performer with regards to productivity. However, there is evidence that suggests the industry performs better than others
  • There needed to be a recovery plan for tourism.

The last point set the ITP in motion. The first arm of the ITP was the Better Work Action Plan (BWAP). The BWAP introduced regenerative tourism, which is when people, communities, and the environment are left better off after being visited. A regenerative tourism system was envisioned to be resilient to shocks, as it would be self-sustaining. The BWAP argued that the first place to start with a regenerative system was with the people who live and work within it. Therefore, that was why the first step of the ITP was focused on workers in the tourism industry. 

A snapshot of the industry showed:

  • The total number of people employed in tourism equalled 146,295 in 2021 
  • Employees under the age of 34 equalled 45 percent 
  • Female employees equalled 54 percent
  • Māori employees equalled 15 percent 
  • Employees who were migrants equalled 22 percent 
  • The estimated hourly wage in the tourism industry was $6.18 less than the national median wage.

From these conclusions from industry data, and feedback from businesses and workers, the BWAP set the vision of tourism to be an industry where: 

  • Workers are consistently treated well, and are able to recognise which businesses to work for, and where to find rewarding work 
  • Businesses are driven by purpose and values, and contribute towards regenerative tourism 
  • Businesses take advantage of new technologies 
  • The tourism workforce is culturally competent and renowned for authentic storytelling 
  • Tourism is an industry that provides skills for life 
  • Tourism entities collaborate with each other to embrace opportunities presented by increases and decreases in tourism demand
  • Tourism leaders are capable and knowledgeable 
  • People are proud to be working in tourism 
  • Tourism can welcome all people into the industry, across all gender, ethnic, and age ranges, and people living with disabilities are not barred from working in the industry.

There will be other trends that will impact tourism. From the domestic side, the tourism labour market was identified to be shrinking, as employment in the industry dropped by 34 percent from 2019 to 2021. Also, the number of New Zealanders studying tourism-related fields dropped by 35 percent over the same period. In addition to New Zealand’s ageing population, the potential growth for the tourism industry will be constrained by a limited workforce. 

The next phase of the ITP will focus on the environment. Unlike the BWAP, the environment phase will focus less on issues and challenges facing the industry but rather on actions required to create the systemic change needed. This phase will be underpinned by the following pillars: 

  • Climate change adaptation 
  • Climate change mitigation 
  • Fostering positive ecological outcomes.  

The ITP was re-scoped in November 2022 to link with work underway with the Aotearoa Circle, which is an initiative that is exploring ways the Aotearoa New Zealand economy can be encouraged to be circular. In other words, ways the economy can minimise waste and keep as much value held in industrial production chains within the domestic economy. A particular point of interest will be balancing the emissions created by tourists flying to and from Aotearoa, and how this could be mitigated. The release of the draft for the environment phase of the ITP has been scheduled for the second quarter of 2023. 

The BWAP stated that the tourism industry is not defined by its products, but by its consumers. This edition of the BEV also discusses what economic conditions are looking like overseas. Unfortunately, most of the world is gearing up for a recession, which is likely to occur by mid-2023 (if not underway already). When global economic activity contracts, so will the demand from international tourists to Aotearoa New Zealand. Tourism businesses may have further storms to weather in the near future, plan or no plan. 


3.0 People resources

The bald facts are:

  • The labour market continues to stay strong, pulling in those who were previously not in paid work, particularly young people aged between 15 and 19
  • Unemployment remains at its near historical low of 3.3 percent
  • Net migration is creeping up, and is likely to return to positive territory next year.

The labour market

Data from the September quarter reflected continued tightness in the labour market as unemployment has not budged from its near historical low of 3.3 percent. Underutilisation, another measure of spare capacity, also fell by 0.2 percentage points to nine percent. The combination of a cost of living crisis and widespread labour shortages has pulled more young people and women into paid work. As a result, both labour force participation (71.7 percent) and employment (69.3 percent) reached record highs. Over 57 percent of the increase in employment during the year was driven by 15-19 year olds. The share of the working age population on Jobseeker Support fell from 6.2 percent to 5.4 percent during the September 2022 year. However, this was still higher than the pre-COVID share of 4.6 percent.  

Demand for labour has not shown any significant signs of slowing down. Forty three percent of businesses surveyed for the Quarterly Survey of Business Opinion (QSBO) identified labour as the biggest factor constraining output. The latest data on filled jobs from October 2022 shows that seasonally adjusted filled jobs remained unchanged during the month.  

Low supply and high demand have meant that the balance of negotiating power is tipped in the favour of workers. Job security is high – 85 percent people employed believe that there is a low to almost no chance of losing their job or business over the next year, an increase of over 10 percentage points since September 2020. Pressure on wages is also growing – 65 percent of jobs have experienced an annual increase in salaries/wages, and close to a third have been over five percent. The annual increase in hourly private sector earnings of 8.5 percent was higher than inflation during the same period (7.2 percent).

Once the effects of the OCR increases start to flow through to business activity, hiring will begin to taper off, and eventually unemployment will rise. We expect to see this starting within the next six months and anticipate unemployment rising to 4.4 percent by June next year. These effects are likely to continue to be felt over the next few years and we forecast the unemployment rate reaching five percent by mid-2025.


Net migration continues to remain in the red. The provisional net migration loss for the year ended September 2022 was 8,400. This loss is driven by the departure of New Zealand citizens which has increased by 41 percent during the year. Migrant arrivals of non-citizens were up by nearly 80 percent year-on-year. 

Looking closer, monthly estimates point to a reversal of COVID-19 trends. Monthly net migration returned to positive four digit territory, for the first time in the July 2022 month since the beginning of the pandemic, with greater arrivals leading the charge. The biggest net migration increases during the year have been from the Philippines (3,320 people), India (2,355 people), and South Africa (1,818 people). The largest net losses have been from citizens of New Zealand (12,675 people), the UK (2,218 people), and the USA (1,055 people).

Source: Statistics New Zealand

4.0 Capital resources

The bald facts are:

  • There are signs that demand for new housing may be cooling off as high building costs and interest rates deter activity
  • Building volumes have largely kept pace with demand for new housing.

Investment and building activity

Demand for new housing continues to increase on an annual basis. Over the year to October 2022, new residential consents issued increased by 5.1 percent. However, there are some signs that demand may be cooling off. Consents issued fell by 12 percent in the October 2022 month compared to the same period a year ago.  

Demand for multi-unit homes, which make up a larger share of all residential consents than stand-alone houses, remained steady. Compared to the same period in the previous year, consents for stand-alone houses fell by 26.7 percent, but those for multi-unit homes rose by 4.2 percent. This was driven by a rise in consents issued for townhouses, flats, and units, which outweighed the reduced demand for apartments and retirement village units. 

In terms of regional movements, those with the highest number of new homes consented per 1,000 residents were Canterbury (13.3), Auckland (13), and Tasman (10.8). Regions with the lowest demand after accounting for differences in population were Gisborne (3.2), Hawke’s Bay (4.4) and Southland (4.4). 

The graph below shows that the value of work put in place for new residential buildings has more less kept pace with the value of new residential buildings consented. The steep increase over the past year has largely been a result of rising building costs in the residential building sector, which were up by 15 percent during the year to September 2022. After adjusting for seasonality, building volumes were up by 3.8 percent during the quarter. 

Source: Statistics New Zealand

Given the recent size of the OCR increases, the cost of raising capital is increasing for both households and businesses alike, which will limit investment in capital resources. Between June and October 2022, average mortgage rates for new borrowers have increased sharply from 5.85 percent to 10.93 percent, and are guaranteed to go higher. The business lending rate (SME overdraft rate) has also jumped from 2.77 percent to 3.71 percent during the same period. Looking ahead, rising construction costs and capacity constraints are also significant risks to the outlook for this sector.

5.0 Home base

The bald facts are:

  • The Government’s finances are generally in line with forecasts, and the OBEGAL continues to trend lower
  • Local authority balance sheets are deteriorating as deficits widen
  • Sustained OCR increases have not yet had an effect on inflation, but the story is likely to be different next year.

Government finances

The interim financial statements of the Government for the four months ended 30 October 2022 show that accounts were generally in line with what was projected in the Budget Economic and Fiscal Update (BEFU), with a few exceptions. Core Crown residual cash was 11.1 percent lower than forecast as a result of higher interest repayments, and higher spending in the health sector than anticipated. Market movements resulted in higher than expected losses on financial instruments, driving the 5.3 percent variance in net debt. 

Core Crown tax revenue was generally in line with the forecast. The strong labour market, and wage inflation, contributed to higher source deductions. But this was offset by lower GST revenue as private consumption was weak in the June quarter, and other indirect taxes were also low mainly because of temporary cuts to fuel tax and road user charges. The OBEGAL deficit was 8.9 percent under what was expected as Crown entities’ finances came out stronger than expected.

The local authority statistics for the year to June 2022 showed that local authority balance sheets are deteriorating. The operating deficit in June 2022 was 62 percent higher a year before. This was driven by a combination of higher expenses and lower revenues. Purchases and other operating expenses were up by 7.5 percent while employee costs were 7.1 percent higher. The only sources of revenue that saw an increase from the year before were rates (8.1 percent) and grants, subsidies, and donations (9.2 percent).


It has now been over a year since the Reserve Bank started to increase the Official Cash Rate (OCR). Since September 2021, the OCR has gone from 0.25 percent to the current 4.25 percent. But inflation has shown no signs of slowing down yet. In the year to September 2022, the CPI increased by 7.2 percent. Inflation from domestic sources was also exceptionally high at 6.6 percent. The unprecedented tightness in the labour market has added further fuel to the inflationary fire, and a wage-price spiral may be one of the biggest risks to sustained economy-wide price rises. Although producer input and output price inflation was off its June 2022 peak, price increases were still higher than CPI increases.  

Inflation expectations, measured in a survey of forecasters, one (5.08 percent) and two (3.62 percent) years out also remain above the Reserve Bank’s upper threshold of three percent. Median household expectations are even higher for one (seven percent) and two (five percent) years out. 

Borrowers, the vast majority of whom have so far been able to dodge the full effects of interest rate increases, will be forced to face the music over the coming year. Borrowers will experience steep rises, which will put real pressure on incomes. Given how deeply tied our economy is to the housing market, we are likely to see a reduction in economic activity once the impact of OCR increases starts to flow though this channel.


Total nominal retail sales were just shy of $30 billion in the September 2022 quarter, rising by 2.5 percent on a quarterly basis. However, once inflation has been accounted for, the increase seems less impressive. The volume of goods sold was up by just 0.4 percent during the same period. In other words, while we have been spending more, we aren’t buying that much more. However, it is clear the full effect of rising interest rates is not yet being felt and households have not started to cut back on spending. 

Although the pace of retail spending seems to be slowing down in most industries, there is still some momentum in spending on clothing, footwear and accessories (5.1 percent), accommodation (4.9 percent), and fuel (3.2 percent), as observed by the quarterly increase in the volume of sales. Spending in these industries has likely been supported by high employment and wages, along with the recovery of the tourism sector.

Source: Statistics New Zealand

6.0 Abroad and beyond

The bald facts are:

  • The trade deficit widened in the September quarter driven by value, and not volume, increases
  • Europe and the UK have signalled that a recession is on the cards, which will see demand for our products reduce in that part of the word. China remains positive that economic growth will continue.


In the September 2022 quarter, the total trade deficit was $7.3 billion, 15.6 percent higher than in the same quarter a year ago. Imports and exports of both goods and services increased, driven in large part by higher global prices for just about everything.

Merchandise export prices were up by 18.4 percent led by higher aluminium (42.5 percent), dairy (25.5 percent), and meat (24.3 percent) prices. Global price pressures were also clear in import prices which were up by a whopping 25.4 percent during the year. The biggest increases were observed in prices for petroleum products (76.3 percent), iron and steel (45.6 percent), and non-fuel crude materials (34.4 percent). Prices for service imports (12.5 percent) increased faster than those for service exports (6.8 percent). It’s no surprise then that businesses are still reporting elevated input price pressures.

Most of our top trading partners are in the Asia Pacific region. We imported more than we exported this quarter from nearly all our top trading partners, with the exception of the USA. Our top three exports this quarter were milk products, meat, and logs. Travel exports are on the mend but are still nowhere near pre-COVID levels when they were our leading export.  

With one of the highest rates of vehicle ownership per capita in the world, it is unsurprising that imports of vehicles, parts, and accessories are on the rise again after a dip during COVID. Petroleum and products and mechanical machinery and equipment rounded out the top three import categories. 

Source: Statistics New Zealand

7.0 The World


The Australian economy grew steadily over the first half of 2022, and this growth has been sustained through to the September 2022 quarter. Tight labour market conditions meant wages remained high. However, labour demand showed signs of easing as employment barely grew in the September quarter. House prices continued to decline from their peak in April 2022. 

Unemployment in Australia remained at around 3.5 percent, and underutilisation still hovered around 9.5 percent. Australian GDP saw a boost due to improving exports, while activity in the construction sector declined due to material and labour shortages, and weather events delaying the pace at which work could be completed. Household spending is expected to slow as official cash rate increases pass through to lending rates, which will then raise pressure on households to hold onto their income. As in Aotearoa New Zealand, the number of visitors to the country has been recovering sluggishly, in part due to delays in visa processing. The Reserve Bank of Australia predicted it will take at least two years for the number of international students and service exports to recover to levels measured before COVID-19. 


Due to rising geopolitical tensions observed around the globe, predicted supply chain issues and volatile financial markets, the Monetary Policy Committee (MPC) of the Reserve Bank of India revised their inflation forecast to 5.7 percent and GDP growth to 7.2 percent for the 2022-23 period. The focus of the MPC is to keep inflation within their target range while encouraging growth, and it seemed this may be possible, given the inflation observed in India has not been as aggressive as in other countries. Manufacturing firms in India expected a reduction in the cost of raw materials over the September quarter, and indicated they would lower their prices accordingly. 

The Mahatma Gandhi National Rural Employment Guarantee Act, which expanded social protections, contributed to reduced demand for workers in rural areas, as working conditions improved in rural farms. In a similar fashion, payroll data indicated that employment conditions were improving for workers in areas of regular employment, and increased hiring was observed in retail, insurance, real estate, and financial services.  

Despite a growing trade deficit, the services sector in India has been growing strongly, particularly in the space of exported offshore software and business services. However, a key risk was that demand for these services is expected to drop, should the USA and Europe dip into recession. However, the capabilities for cloud computing and automation in this sector have kept businesses positive despite the gloomy outlook for the rest of the world. 


The People’s Bank of China (PBC) has kept a constant flow of funding to central government operations and lending channels, to ensure aggregate credit growth remains stable. Support for small- and medium-sized businesses, and clean coal use, also increased. The PBC launched new funding schemes for science and technology innovation, inclusive elderly care, and transportation and logistics. 

The PBC, in-line with the Chinese government, has taken the bottom line of “no systemic risks”, which includes support of the zero-tolerance approach to the containment of COVID-19. The PBC is therefore focusing on pursuing progress while ensuring stability. What this will look like is investment in areas of the Chinese economy earmarked to grow in reaction to economic developments overseas, and monetary policy that aims to keep prices as stable as possible. 

GDP continued to rise in China, despite a decrease in annual exports from $3.284 trillion USD for November 2021, to $3.241 trillion USD for November 2022. 


The Bank of Japan (BoJ) was confident that the Japanese economy will recover from the impacts of COVID-19 around mid-2023. However, the slowdowns observed in other countries are likely to put downward pressure on this recovery. CPI inflation was set to continue increasing until mid-2023 in a similar fashion. When the economy recovers to activity seen before COVID-19, the BoJ expected CPI inflation to pick up again in 2024. 

The BoJ recognised that the aim of many overseas central banks to simultaneously encourage economic growth, while dampening inflation, may not be possible to achieve domestically. The impact of the Ukraine conflict on the price of commodities, such as grains, mean that control of CPI inflation may not be within the control of central banks. Because Japan is a commodity importer, sudden increases to the prices of commodities puts the real income of Japanese households at risk. 

Finally, the BoJ stated that globalisation has supported Japan’s economy in modern times, but the face of globalisation is changing as the effects of climate change, conflict, and the pandemic are felt in households and the marketplace. The change in international trends and preferences for services and products meant that the medium- and long-term growth expectations of Japanese firms were uncertain. The BoJ outlined it will continue to invest in firms to ensure expectations remain positive. 


Overall, the USA has rebounded relatively well from the effects of the global pandemic.  However, the middle class is under considerable pressure from rising costs of living and economic uncertainty. There was a substantial amount of investment announced by the government to public welfare and infrastructure. The Inflation Reduction Act of 2022, signed in August, has indicated a swathe of policy investment to lower prescription drug prices, reduce the government deficit, and invest in domestic energy production, and energy efficiency measures, for commercial and residential buildings. The Act was projected to reduce 2030 US greenhouse gas emissions to 40 percent below 2005 levels. However, it was disputed whether the Act will reduce or increase economic inflation. 

The OECD recognised that a significant pressure for households is the cost of childcare, which costs around 35 percent of women’s median full-time earnings. Lack of competition in the healthcare sector has also led to rising markups and a lack of access to health information for consumers. Regions which are more reliant on fossil fuels for industry production and income are likely to be hit harder than other regions as the USA transitions towards cleaner energy.


Uncertainty surrounding energy supply decreased in November, thanks to government interventions securing energy price expectations for the next two years. However, the Bank of England (BoE) recognised this intervention may divert inflationary pressures to other areas of the economy.  

The UK’s GDP was expected to decline by around 0.75 percent, which reflected the impact of the high price of energy and tradeable goods seen in the last quarter. CPI inflation was projected to increase by 11 percent in the December 2022 quarter. 

The BoE stated that they expect the UK to remain in recession over 2023 and 2024. While a recession means inflation will decrease, it will be coupled with a slackening of economic activity and a rising unemployment rate. Business investment will be subdued over the near future, and housing investment was also set to fall sharply. The BoE predicted the recession will be longer than the 1990 recession, but not as strong as the 1980 and 2009 recessions. 


Despite a strong first half of 2022, as the EU progresses into winter, the effects of the conflict in Ukraine have reinforced demand and inflationary pressures on the European economy. Expectations for growth have fallen considerably, and as a result the outlook for 2023 is weak, despite a relatively healthy economic growth over 2022.  

The European Commission has forecast that most EU countries will be tipped into recession in 2023, but will progressively regain growth by 2024 if economic conditions remain stable. The European labour market remains strong despite the present and looming economic pressures, with the number of employed persons in the EU reaching a high of 213.4 million. 

Unfortunately, uncertainty rings through the economic outlook for Europe as the Ukraine conflict continues. The highest risk looking ahead is the vulnerability of the gas market as the EU heads into winter, and inconsistency between fiscal and monetary policy objectives for European countries. 

The path of global GDP growth

GDP growth has come to somewhat of a regular pattern: Western countries are feeling the effects of sustained inflation and are leaning towards recessions; engineered or otherwise. Countries which export to the west, such as India and China, are more positive that they will be able to maintain their economic activity, with the caveat that a reduction in production overseas might result in reduced demand for their products and services. The consequences of COVID-19 and the Ukraine conflict are felt around the world, compounded by uncertainty. At the same time, many governments have recognised the pressure to invest in climate change mitigation and adaptation measures, as well as funnelling further funding into innovation and technology to prepare for the changing face of the global market. 

Source: OECD

8.0 BERL forecasts

We have simplified the contents of our forecast data tables, to focus on a selection of key variables. 
If you would like to obtain forecasts of other variables not shown, please email or phone +64 21 868 190.

We have pencilled in a contraction in economic activity for next year, following the unprecedented rise in the OCR last month. As a result, we expect unemployment to increase and a reduction in employment growth. We also see net migration returning to positive levels by June 2023, after which they will continue to increase. In addition, given the strong wage growth and sustained inflation, we have adjusted out forecast for the CPI upwards for 2023.  

Annual % change, June years
2021 2022 2023 2024 2025
Actual Actual Forecast Forecast Forecast
GDP (production) 5.3 1 -1 0.5 1.5
FTE employment growth 2.7 2 0 0.4 1.2
Unemployment rate (% of labour force) 4 3.3 4.4 4.7 5
Net migration (number) 4,700 11,500 24,000 36,000 50,000
CPI 3.3 7.3 7 4.2 3.5
Exports growth 0.3 11.9 10 7.4 4.1
Imports growth -1.1 28.7 19 9.5 4.9
OBEGAL ($ billions) -4.7 -9.7 -6 -3.4 -1.9