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Te Waka Economic Radar July 2021

As the New Zealand economy continues its recovery from the Covid-recession, the Waikato region does likewise. After falling in the December 2020 quarter, GDP bounced back in the March quarter, with the construction and retail and wholesale trade sectors leading the way. On the other hand, some sectors that are relatively important in the Waikato region – the utilities sector (electricity and gas) and mining – saw significant falls in activity in the quarter.

Some commentators have interpreted the March quarter bounce as a sign that the economy is heating up, that inflation is around the corner, and that the Reserve Bank will need to start raising interest rates earlier than previously thought. To date there is little sign in the data of widespread price pressures, with Consumer Price Index inflation remaining in the lower half of the Reserve Bank’s target range of 1-3 percent.

Inflation in the ‘tradeable’ sector (i.e. that part of the economy exposed to international competition) has moved into positive territory for the first time since before last year’s lockdown. In contrast, non-tradeable inflation (i.e. in that part of the economy not involved in exporting or competing with imports) has slowed somewhat. Nevertheless, the Reserve Bank sets monetary policy based on expected, not current, inflation, so will be watching developments closely.

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