WELLINGTON (Reuters) - The Reserve Bank of New Zealand (RBNZ) said on Tuesday economic activity was returning to pre-COVID-19 levels supported by favourable domestic health outcomes and improving global demand and higher prices for New Zealand's goods and exports.
A pick-up in consumer spending and construction activity, supported by substantial monetary and fiscal stimulus was also underpinning employment growth, the central bank said in its annual statement of intent.
"However, vulnerabilities still remain and the recovery needs continued monetary and fiscal support," Governor Adrian Orr and Deputy Governor Geoff Bascand said in the statement.
"We remain prepared to navigate the challenges presented by our economic and financial environment," Orr said.
New Zealand enforced tough lockdowns and social distancing measures to virtually eliminate the coronavirus domestically, allowing the economy to bounce back to pre-pandemic levels sooner than expected.
The RBNZ last month became one of the first advanced economies to signal a move away from the stimulatory settings adopted during the pandemic after it hinted at an interest rate hike next year.
"As long as COVID-19 is contained and the global and economic recovery is sustained, eventually economic policy settings can be expected to normalise over the medium term," RBNZ said in the statement.
But it added risks associated with the housing market were accumulating and parts of the economy appeared more vulnerable to future downturns than they were before the pandemic.
House prices have risen about 30% over the last year fuelled by historically low interest rates and a shortage of affordable homes.