At least 2.6 million people have been killed by the virus – that was the story of 2021. But World Health Organization Director-General Dr Tedros Adhanom Ghebreyesus says more than 335 million doses of Covid-19 vaccines have been administered globally so far – that will be the story of 2021, we hope.
Economic prospects have improved with the global vaccines rollout, as vaccination will reduce the need for rigid containment measures. The OECD Economic Outlook interim report for March 2021 shows global growth in gross domestic product in is projected to be 5.6 per cent in 2021, and 4 per cent in 2022.
All major countries except China recorded negative 2020 growth.
The pandemic caused significant contractions in major European countries: Spain contracted by 11 percent, the UK by 9.9 per cent, Italy 8.9 per cent, and France by 8.2 per cent.
Yet GDP falls have remained relatively mild in New Zealand’s main trade partners in the Asia-Pacific region. Japan contracted by 4.8 per cent, Australia by 2.5 per cent, and Korea was only down by 1 per cent.
China has become the only major economic power to grow in 2020, seeing economic growth of 2.3 per cent.
China’s quarterly GDP results
China’s GDP fell significantly in the March quarter of 2020 but returned to growth by the second quarter. The year-on-year GDP went up by 3.2 percent for the second quarter of 2020. It was the only major country recording positive growth in the second quarter and its economic growth continued in the third quarter of 2020.
The year-on-year GDP was up by 4.9 percent in the third quarter and 6.5 per cent in the December quarter.
New Zealand’s biggest trading partners in the Asia-Pacific region enjoyed positive growth rates in the last two quarters of 2020.
The recovery of the Chinese economy since the second quarter also helped the Australian economy. Increased Chinese demand for iron ore stimulated Australian exports.
The Australian Bureau of Statistics reports that the terms of trade rose 4.7 percent in the last quarter of 2020 off the back of higher export prices, particularly for iron ore. The two main contributions to the rise in export index in the December 2020 quarter were metalliferous ores and metal scrap, driven by the demand for iron ore from China, and non-ferrous metals, due to increased global manufacturing demand.
In Australia, GDP fell by 0.3 percent in the March quarter of 2020. GDP contracted a seasonally-adjusted 7 percent in the June quarter but rebounded in the third quarter by 3.4 percent.
GDP rose by 3.1 percent in the December quarter of 2020. Australia’s Treasurer Josh Frydenberg said this month that “the Australian economy has recovered 85 percent of its Covid-induced fall”.
While the fourth quarter growth suggests that the Australian economy is on a recovery path, in annual terms, there has been a 1.1 percent fall in GDP.
In Japan GDP rose 2.8 percent in December quarter of 2020. This follows a 5.3 percent rise in the September quarter. The continuation in recovery is reflected in through the year results, which improved from -5.8 percent to -1.3 percent in the December quarter.
GDP in Korea grew 1.2 percent from the third to the fourth quarter of 2020, following a 2.1 percent expansion in the September quarter. On a year-on-year basis, however, the Korean economy shrank 1.2 percent in the fourth quarter of 2020.
Australia, China, Japan, and Korea are the most important Asia-Pacific export destinations for NZ goods
According to the international trade figures published this month by Statistics NZ, total New Zealand exports of goods for the December 2020 quarter were $15 billion.
Australia, China, Japan, and Korea, in total, accounted for more than 50 percent of this figure.
New Zealand has bilateral and multilateral trade agreements with these four countries. In November 2020, New Zealand and these four countries joined the Regional Comprehensive Economic Partnership, arguably the largest free trade agreement in history. It is also the first trade agreement bringing together China, Japan and South Korea.
New Zealand is also hosting the Asia-Pacific Economic Cooperation Summit this year. APEC is made up of 21 members, including Australia, China, Japan, and Korea.
On 11 March 2021, the first virtual media conference of APEC 2021 was held for domestic and international media.
How can NZ benefit from its trade partners’ growth?
There is evidence in the literature that countries benefit from trading with fast-growing countries.
In an earlier study, for example, International Monetary Fund researchers found that a country’s growth is positively associated with both the growth rates and relative incomes of its trading partners. Accordingly, New Zealand can benefit a lot, not only in the long-run, but also in the short-run via increasing its trade ties with its main trade partners in the Asia-Pacific region. This is not the entire picture, though.
Diversifying into the region’s “new tiger” economies will also be beneficial for New Zealand. According to a recent IMF report, the Vietnamese economy expanded by 2.9 percent in 2020, among the highest in the world.
Although there have been increases in two-way trade in recent years, Vietnam is not a major trade partner with New Zealand. Less than 1.5 percent of New Zealand commodity exports in December 2020 quarter were to Vietnam.
Promoting the nexus between international trade and economic growth will be particularly important for the countries in the Asia-Pacific region in the post-Covid world.
Hosting APEC 2021 is a significant opportunity to strengthening the ties with high-growing and stable Asian economies.