NZ in recession as Covid shrinks GDP by 12.2%

Thursday, 17 September 2020

Stats NZ confirms double-digit drop in GDP.

New Zealand’s June quarter GDP fell by 12.2 per cent, Stats NZ has reported.

The decline covers most of the period between the end of March and mid-May, when the whole country spent seven weeks in alert level 4 and level 3 lockdowns.

The decline in GDP per capita was even higher, at 12.6 per cent in the quarter, due to population growth.

ASB said the huge fall was close to its own estimate of a 11 per cent decline and “market expectations” of a 13 per cent drop.

“It’s not the size of the fall that matters, but the size of the rebound and, like many, we expect to see a strong bounce back in activity over the third quarter,” the bank said.

* Official unemployment falls to 4% in June quarter but banks warn it won't last

* Covid-19 took 1.6 per cent chunk out of GDP by end of March

KiwiBank chief economist Jarrod Kerr echoed that sentiment.

“We’ve never seen anything like this. It was traumatic.

“Service exports were stonewalled, and down 40 per cent in the quarter. Consumption was down 12 per cent, and investment was slashed by 20 per cent,” he said.

But more than three months had since passed and there was “little point getting hung up on second quarter numbers”, he said.

Finance Minister Grant Robertson says Stats NZ’s data showes the limitations of using GDP as a proxy for wellbeing, while National’s finance spokesman Paul Goldsmith says Labour has made the “hole” deeper than it needed to be.

“The unprecedented nature of the economic shock means we face a unique recovery, full of opportunities. A key opportunity dished up by Covid-19 is a weapon in the fight against climate change,” he said.

“Policy measures should now focus on enabling businesses to adapt.”

New Zealand is one of the last developed countries to calculate the decline in its second-quarter GDP.

The average fall in GDP across the OECD has been 10.6 per cent.

Australia and the United States have fared better than most with declines of 7 per cent and 9.1 per cent, respectively, while the average drop so far in Europe is 12.4 per cent.

Worse hit has been the United Kingdom, where the economy shrank a horror 20.4 per cent during the same period.

The OECD had forecast very early on in the crisis in April that the trade and tourism-exposed New Zealand economy would suffer one of the heaviest initial hits from Covid, forecasting a 30 per cent drop in activity, versus a 22 per cent decline in Australia and a 25 per cent GDP drop in the US.

However, it later revised up its global forecasts.

National Party finance spokesman Paul Goldsmith said a “lack of pragmatism and a clear plan from Labour” had made the economic hole deeper and the impact harder than it needed to be.

“New Zealand is looking at a longer, more painful economic crisis than earlier forecast. There is a better way, it requires a serious growth plan to get us back on track,” he said.

Activity in the construction industry – one of the sectors most affected by lockdowns – declined by more than a quarter.

Goldsmith said National would release its fiscal policy on Friday which would balance the need to inject stimulus, increase investment in core public services and restore government debt back to prudent levels.

Finance Minister Grant Robertson said the GDP drop was at the lower end of commentators’ expectations and reflected the Government’s decision go “hard and early” on Covid restrictions so the country could come back faster and stronger.

“While the economy slowed during lockdown, the benefits of moving into alert level 4 are not taken into account – including potentially saving thousands of lives, not overburdening the health system and getting on top of the virus,” he said.

Stats NZ senior manager Paul Pascoe confirmed the 12.2 per cent fall in quarterly GDP was by far the largest since comparable records started in 1987.

Some industries were more affected than others by the border closure and alert levels restrictions, the department said.

“Industries like retail, accommodation and restaurants, and transport saw significant declines in production because they were most directly affected by the international travel ban and strict nationwide lockdown,” Pascoe said.

“Other industries, like food and beverage manufacturing, were essential services and fell much less.”

The decline in the construction sector was 25.8 per cent, while manufacturing fell by 13 per cent.

Stats NZ said the fall in production was paralleled by declines in household spending, which fell 12.1 per cent over the quarter.

Stats NZ often revises its estimates of GDP over time, and BNZ warned this week that the changes that might be made to the second-quarter figures could be larger than usual.

“Today’s results represent the first official estimate of overall economic activity in the June 2020 quarter,” Pascoe acknowledged.

“As always, we’d expect to refine and revise this initial view as more complete data becomes available.

“This quarter is clearly not business as usual and there is generally a higher level of uncertainty associated with measuring such significant changes in economic activity,” he said.

But Stats NZ had used “extra data and careful analysis” to minimise the uncertainty and provide a reliable first estimate, he said.

The Reserve Bank had forecast a worse, 14.2 per cent, drop in GDP.

But BNZ said on Monday that it doubted “a surprise either way” would have much impact on central bank’s assessment on future monetary policy, as it was “more worried about the future than the past”.

ANZ, which had forecast a 12 per cent GDP drop said policymakers would “rightly downplay the importance of the data”.

“The third quarter will bring a sharp, but partial, rebound. The path to true recovery is lengthy, and further stimulus will be required,” it said.

In a ray of positive news, Stats NZ reported earlier this week that, despite the economic decline, New Zealand reported a record $500 million current account surplus in the June quarter, its first surplus in 11 years, as imports fell faster than exports.

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