Can the New Zealand economy bounce back after second lockdown?

As New Zealand completes 7 days of lockdown and with community cases on the rise the question is when can the economy reopen again and will it be able to bounce back like in the third quarter last year – 14.1% growth. An expansionary fiscal and monetary policy – increase in government spending and lower interest rates – were largely responsible for this recovery. Were it not for the lockdown last Wednesday the Reserve Bank of New Zealand would have raised interest rates to slowdown an overheating economy which had recovered well after the initial lockdown.

So with interest rates still at an expansionary 0.25% and a promise from finance minister Grant Robertson to provide a fiscal stimulus there is every chance that the economy should return to pre-second lockdown growth and have a central bank looking to raise interest rates as supply constraints and pent up demand start to inflate prices. Graph below shows the GDP forecast from the Bank of New Zealand – note the bounce back in GDP and the lockdown in mid 2020. However a lot depends on how long the lockdown will last for.

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