Are we in a K-shaped recovery?
Are we in a K-shaped recovery?
According to Investopedia a K-shaped recovery occurs when, following a recession, different parts of the economy recover at different rates, times, or magnitudes. This contrasts with an even, uniform recovery across sectors, industries, or groups of people. A K-shaped recovery leads to changes in the structure of the economy or the broader society as economic outcomes and relations are fundamentally changed before and after the recession. This type of recovery is called K-shaped because the path of different parts of the economy when charted together may diverge, resembling the two arms of the Roman letter "K."
So, if that does not make sense to you…essentially growth happens in some parts or industries of the economy and slower recoveries and negative sentiments can continue in other sectors & industries.
So, are we in a K shaped recovery? We think we are, and you only have to look locally what is happening here in Central Otago to see this. The housing market and building industry is booming again, whilst the tourism and hospitality sectors have been somewhat left in tatters. Further afield look at our NZ economic powerhouse, Auckland. Again, you are seeing record house prices whilst unemployment is growing, companies are restructuring, and cutbacks are occurring. Plus, heaven forbid another regional Auckland lockdown could occur due to the re-emergence of COVID-19 could stretch some industries to breaking point. We think this type of lurching from highs and lows depending on what sector you look at will continue and could do so for years to come.
Another example is in education sector, overseas students (still locked out) account for a large chunk of the dollars made within these tertiary education facilities. Even domestic high school students about to embark on university will be impacted. What we think you will find is Auckland university student numbers could drop whilst universities away from the COVID hotspot could thrive again like Otago and Massey University for example. This all makes it feel that there is a K shaped recovery, and some sectors and geographies are all seeing different rates of growth. If we focus close to home on what we do best - proppy.co.nz (NZ’s licensed real estate property platform) had yet another record month (the highest since 2015) highlighting that housing continues to grow throughout the country. Only last week many economists within NZ have re-iterated that they are predicting strong growth in the NZ Property market right now through to the end of 2021.
REINZ recorded the highest number of properties sold in a month in New Zealand for 42 months (March 2017) and the highest number of properties sold in a September month for 14 years. Click here for their monthly report.
The property market is obviously only one component of the economy and it will be fascinating to watch if New Zealand is on a K shaped recovery or whether we can bounce back sharply (V Shaped recovery), or will it be a prolonged slow gradual recovery (U Shaped recovery). Whatever it will be, time will only tell us.
Tyson & Hannah