New Zealand construction stumbles but residential will support growth

New Zealand recorded its first suspected case of the Delta variant on August 17, 2021, and in line with its zero-Covid policy, the government immediately placed the entire country into an Alert Level 4 lockdown. By the end of the third quarter of 2021, Auckland had spent a total of thirty-five days under Tier 4 restrictions and an additional nine days under Tier 3 while the rest of New Zealand had spent a total of fourteen days in lockdown. Level 4. Given the significant limitation of economic activity under Level 4 restrictions, including the prevention of non-essential construction work, it is not surprising that in the third quarter of 2021, the neo-economy Zealand has recorded its second strongest quarterly contraction since current records began. According to Stats NZ, gross domestic product fell to NZ$65.6 billion ($44.7 billion) in the third quarter of 2021, down 3.7% quarter on quarter and down 0.3 % YoY (YoY). Encouragingly, however, this contraction was significantly weaker than expected, with the Reserve Bank of New Zealand (RBNZ) initially forecasting a quarterly contraction of 7%.
The restrictions also weighed heavily on construction activity. Construction sector value added fell to NZD 4.2 billion ($2.8 billion) in the third quarter of 2021, a contraction of 9.6% quarter-on-quarter and 11.1% year-on-year. A similar drop, although slightly less drastic, was seen in the volume of construction work completed during the quarter, which fell 8.6% quarter-on-quarter and 4.6% year-on-year. Residential construction completions were relatively more resilient, contracting just 6.4% quarter-on-quarter and growing 1.2% year-on-year. In contrast, non-residential completions fell significantly in the quarter, registering contractions of 12.5% quarter-on-quarter and 14% year-on-year. Due to the extended period spent under Tier 4 restrictions, the value of construction completed in Auckland has seen a much larger drop than that completed in the rest of the North Island or that completed in the South Island ; decline of 11% T/T, compared to declines of 0.4% in the rest of the North Island and a decline of 1.7% in the South Island.

However, the slowdown in construction activity in the third quarter of 2021 is expected to be only a temporary setback for the New Zealand construction industry, with the record number of building permits issued in the first ten months of the year indicating a much more promising outlook. forward. In the first ten months of 2021, the number of building permits issued amounted to 44,539, an increase of 23.5% compared to the 36,052 issued in the first ten months of 2020 and an increase of 21.7% in the number of permits issued in the first ten months of 2019. Driving this growth is the intense volume of residential construction activity, with consents up 26.1% year-on-year between January and October 2021 to 40,083 and up 27.5% over the first ten months of 2019. On the other hand, non-residential consents increased by 4.5%. Year-on-year, but down 13.8% from the same period in 2019.
GlobalData currently expects the New Zealand construction industry to grow 8.1% in 2021 and 7.8% growth in 2022. However, downside risks to the outlook are relatively large, including accelerating inflation, rising material and wage costs, and the threat posed by the Omicron variant. The RBNZ raised its official exchange rate (OCR) to 0.75% on November 24, 2021, citing rising price pressures, tightening capacity and exceeding sustainable employment levels. Rising funding costs due to increased OCR are likely to weigh on demand for greater capacity in sectors where uncertainty remains high, primarily affecting the commercial sector. The New Zealand government postponed the return of quarantine-free travel in response to the spread of Omicron on December 21, 2021, in addition to increasing the quarantine period from seven days to ten. Quarantine-free travel was originally scheduled to be open to New Zealanders and Australian resident visa holders on January 17, 2022, but this has been postponed until late February 2022. This is expected to push back the originally planned reopening of borders in April, delaying recovery New Zealand’s tourism industry and further limiting demand for commercial capacity.
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