International arrivals in May were the lowest in 61 years. Photo / Getty Images
International arrivals in May were the lowest in 61 years. Photo / Getty Images
The New Zealand economy is expected to shrink by 3.9 per cent this year and recover later in the following year, according to a new report.
A report by global market research firm IbisWorld says the closure of New Zealand's borders to international visitors will result in an almost 4per cent contraction in gross domestic product this year followed by a 3.6 per cent increase between 2021and 2022.
The report outlined that the loss of tourism revenue and the lack of access to foreign labour was expected to result in a "severe economic contraction".
The GDP figures in the report were referred to a "real GDP" accounting for inflation.
While there is no timeline on when New Zealand will open up to international visitors, and a transtasman travel bubble between New Zealand and Australia is looking less likely with the recent outbreak in the state of Victoria, Christmas is estimated to be the earliest the country can expect any incoming international visitors.
Foreign tourists contribute about $17 billion to the New Zealand economy annually, while Kiwis spend approximately $9b each year on international travel.
While an estimated third of that $9b is not expected to be spent, even a large portion of that potential domestic spend is not enough to fill the gap of international visitors.
The report outlined that revenue in the tourism sector is expected to decline by "at least 26.3 per cent" this year.
Revenue of large hotel businesses is expected to fall by almost 31 per cent between 2020 and 2021 and employment by these operators is expected to decline by 12.6 per cent in the same period, the equivalent of 1400 jobs in the industry.
IbisWorld senior analyst Matthew Reeves said compounding loss of foreign tourism, domestic tourist visitor days were expected to fall by 14.2 per cent between 2020 and 2021.
Source: IbisWorld
The report outlined that the ongoing border closure was expected to "significantly hinder the performance of the agricultural sector", which relied heavily on overseas labour for fruit picking and other related tasks.
Reeves warned that without seasonal foreign workers, fresh produce could be left to rot and earnings reduced.
Tourism employs about 230,000 people in New Zealand and accounts for close to 10 per cent of GDP, the outlined.
Silver lining
The report outlined that while the border closure was harmful for some economic sectors, the benefits "to the broader economy outweighed the cost".
It noted that cinemas and film production and gyms and fitness centres had benefited.
"The redirection of outbound tourism to domestic attractions may also provide some relief for domestic tourism operators ... promoting domestic travel would significantly reduce the shortfall left by the current ban on international tourism to New Zealand," the report outlined.
Source: IbisWorld
It concluded that as long as New Zealand kept Covid-19 under control the economy was on track to rebound.
"As the local economy improves and travel restrictions on inbound tourists are eased, demand is projected to return. This is likely to start with a travel bubble with Australia and the Pacific Islands."
Reeves said real GDP was forecast to grow ay an annual rate of 2.5 per cent over the next five years through to 2026, along with a 3.6 per cent increase between 2021 and 2022.
