GDP jump of 14 per cent completes NZ's 'V'-shaped recovery

Thursday, 17 December 2020

The September-quarter recovery is in line with most banks' forecasts.

Economic activity has bounced back to pre-Covid levels, with gross domestic product rising a record 14 per cent in the three months ended on September 30, Stats NZ has reported.

Finance Minister Grant Robertson said the bounce was the result of the Government’s decision to go “hard and early” during the Covid-19 pandemic.

But he said the pace of the global recovery was likely to be uneven as countries contended with renewed virus outbreaks “and the resulting containment measures”.

“The full economic effects of Covid are still to be felt in New Zealand and across the world,” he said.

* Here comes the rebound: NZ's post-lockdown recovery to be revealed

* NZ in recession as Covid shrinks GDP by 12.2%

Finance Minister Grant Robertson cautions that the full effects of Covid have yet to be felt, tipping an “uneven” global recovery.

Infometrics economist Brad Olsen said the bounce-back to pre-pandemic levels was “remarkable”.

Because some of the recovery had been due to post-lockdown “pent-up demand”, there was a risk that GDP might go back into decline in the current quarter, which ends on December 31, he said.

The question would be whether sectors such as retail and accommodation could sustain their momentum or whether they would “soften again”, he said.

“We are seeing already, in some of the numbers, spending activity is a bit softer in the last wee while.”

National Party finance spokesman Michael Woodhouse said the recovery meant Robertson needed to quickly lay out a path back to a government surplus.

“We’ve raided the ‘rainy day fund’ to weather this economic crisis, but now that the economy is recovering it’s time for a sensible plan to pay down debt so we are ready when the next economic shock arrives,” he said.

The September-quarter recovery was in line with most banks' forecasts.

Adding icing to the cake, Stats NZ revised down the record drop in GDP in the June quarter. It had originally estimated the drop at 12.2 per cent, but now calculates it as 11 per cent.

The department also revised down the March quarter GDP drop to 1.2 per cent, from 1.4 per cent.

GDP was higher in the September quarter than in the same quarter in 2019, meaning the overall economy has completed a “V”-shaped recovery from Covid.

However, Stats NZ national accounts manager Paul Pascoe said the effects of Covid-19 on different industries had varied “and for some industries these may persist for some time”.

There are concerns the absence of international tourists over the summer could drag the economy back into decline, especially if the growth in consumer spending runs out of puff.

The rebound was not enough to make up for the lost activity during the lockdown period, with GDP in the 12 months ended on September 30 down 2.2 per cent on the prior year.

Pascoe noted that was the largest decline on record.

“Even though activity across the country largely returned to pre-Covid levels, we haven't recouped all the activity or production lost as a result of the lockdown in the June quarter,” he said.

Nevertheless, the strong bounce is likely to add more fuel to the debate over whether the Reserve Bank can now afford to ease back its monetary stimulus.

Bank of New Zealand chief economist Stephen Toplis questioned on Wednesday whether the central bank would spend right up to its $100 billion cap on quantitative easing.

That was in the wake of improved fiscal forecasts from the Treasury, which now expects unemployment to peak at less than 7 per cent and core Crown debt to peak under 53 per cent of GDP.

Westpac senior economist Michael Gordon said the bottom line for the Reserve Bank would be whether inflation was on track to meet its mandated target.

The United Kingdom was one of the few countries to have had a bigger economic bounce than New Zealand – but that was from a far deeper low.

“A stronger than expected economy certainly goes in that direction, but this needs to be balanced against other developments such as the sharply higher New Zealand dollar,” he said.

ASB said the latest GDP figure and the revisions meant economic activity was up 0.4 per cent on a year ago “versus the market forecast of a 1.8 per cent decline”.

“The economy looks to have been more resilient and has recovered from lockdown much faster than expected earlier this year,” the bank said.

“The key question going forward is whether momentum can be sustained.”

New Zealand is one of the last member countries of the Organisation for Economic Co-operation and Development (OECD) to report its third-quarter GDP figures, and Pascoe said it was “at the stronger end of bounce-backs overseas”.

Overall, GDP rose 9.1 per cent in the quarter among OECD countries that have reported their September figures to date, following a 10.5 per cent drop in the second quarter.

Britain was one of the few countries to report a bigger bounce. But its 15.5 per cent rebound followed a much larger 19.8 per cent drop in GDP in its prior quarter.

New Zealand's services sector recovered 11.1 per cent in the September quarter, making it the biggest contributor to the recovery, with activity in the previously hard-hit retail, accommodation and restaurant industries surging nearly 43 per cent.

Activity in the primary industries, which had been less affected by Covid, rose 4.6 per cent.

Pascoe said new “benchmarks” and data had resulted in the revisions to its first- and second-quarter GDP figures.

As certain benchmarks were reviewed annually, there was less likelihood that its 14 per cent growth estimate for the third quarter would change as much, “all other things being equal”, he said.