Recession tip as GDP falls
The New Zealand economy contracted by 1 per cent in the last three months of 2020, leaving the Government scrambling to find favourable international comparisons for its growth record.
The drop in gross domestic product, GDP, means the economy is probably already six months into a recession. In technical economic terms the economy is considered in recession after two consecutive quarters of negative economic growth. The surprisingly large 1 per cent drop to GDP during the last three months to December 31, 2020 also meant total growth in 2020 was revised down almost 3 per cent on 2019.
Economic growth is an aggregate measure of the nation’s economic activity, meaning that lower levels of growth on average means fewer jobs, less or lower average pay rises, but the effects are not felt evenly throughout the economy.
It comes as more stories have begun to appear about job losses and struggling businesses in regions doing it tough – particularly those reliant on tourism.
Finance Minister Grant Robertson was eager to stress that although the economy had contracted, it was still a good performance considering the Covid pandemic.
‘‘New Zealand did take a different approach to dealing to Covid-19 than many other countries because our view is the best economic response is a strong public health response, and today’s data continues to support that,’’ Robertson told Parliament yesterday.
‘‘This is a stronger position than all the countries we routinely compare ourselves to. It compares to a
1.1 per cent drop in Australia, a 2.4 per cent drop in the United States, a
4.6 per cent drop in the EU, a 7.8 per cent drop in the UK, and an average drop across the OECD of 3.1 per cent,’’ Robertson said.
But the banks were quick to point out that the figures showed the economic recovery was not as robust as markets had previously thought. ASB Bank described the December-quarter figure as much weaker than expected and forecast it would ‘‘quash any talk of [interest] rate hikes and bring the risk of rate cuts back to the table’’. ‘‘The economy has not fared as well as previously believed through the Covid pandemic,’’ it said.
The decline in economic activity was worse than predicted by any of the five major banks, three of which had been forecasting a modest lift of between 0.1 per cent and 0.5 per cent for the quarter.
The figure means Stats NZ has now been able to calculate that GDP was 2.9 per cent lower in 2020 than in 2019, at $322 billion, and down 4.9 per cent on a ‘‘per capita’’ basis once adjusted for the country’s larger population.
The overall GDP decline was primarily due to a drop in activity in the construction, retail and accommodation sectors after a strong bounce-back from them in the three months to the end of September 2020.
National Party shadow treasurer Andrew Bayly said a lack of infrastructure investment appeared to be behind a 10 per cent drop in construction. The Government had shown ‘‘an inability to deliver’’, with work having begun on only 49 of its 205 shovel-ready projects that were soon supposed to be underway, he said.
ANZ said it did not believe the new figures should change the economic narrative. ‘‘A fair amount of the quarterly contraction appears to be industries recoiling from strong expansion during the third quarter as they bump into capacity constraints,’’ it said.