Recession
Winter arrives for economy
New Zealand is now almost certainly in recession — its first for more than a decade. Gross domestic product suffered its largest fall in 29 years as the initial effects of Covid-19 restrictions hit economic activity.
The economy contracted by 1.6 per cent in the March quarter as lockdown began.
Most economists had expected a fall of between 1.0 and 1.3 per cent — although the Reserve Bank forecast a drop of 2.4 per cent in its May monetary policy statement.
It was New Zealand’s first quarter of economic contraction in nine years.
And it means this country is almost certainly in its first recession since the global financial crisis in 2008 and 2009.
A recession is typically defined as two consecutive quarters of contraction.
A huge economic slump in the second quarter is being taken as a given by economists because of the time spent in lockdown and other alert level restrictions through April and May.
Economists are forecasting a much bigger fall in the current June quarter. For example, ASB expects a drop of 17 per cent and ANZ expects a fall of 19 per cent.
Still, the March quarter’s GDP results showed a widespread drop in economic activity as travel restrictions took hold and the country moved towards lockdown.
Covid-19 effects came on top of the smaller impact from drought in some parts of the country.
“The 1.6 per cent fall surpassed quarterly falls during the global financial crisis in the late 2000s,” said national accounts senior manager Paul Pascoe.
“It is the largest quarterly fall since the 2.4 per cent decline in the March 1991 quarter.”
New Zealand’s governmentordered, month-long lockdown began at 11.59pm on March 25.
But economic activity was likely already being affected by concerns about the rise of the global pandemic from mid-February.
The last time New Zealand’s economy saw a recession was from early 2008 — initially as a result of drought and then through the peak of the GFC. The country emerged from recession in mid-2009.
While the March slump was slightly larger than many economists expected, it is marginal in the context of what’s coming.
“At the margins, the slightly larger contraction in today’s numbers might imply a slightly smaller fall in Q2,” said ANZ senior economist Liz Kendall.
“But that really isn’t here nor there given the magnitude of the 19 per cent fall we have pencilled in for the June quarter — and any tweak to our forecasts is a matter of timing, rather than change in view.”
Service industries contributed the most to the drop in activity, making up almost half of the overall fall in GDP.
The hospitality industry (accommodation, restaurants and bars) was among the most affected industries, falling 7.8 per cent as tourism fell after the border was closed to slow the spread of Covid-19.
The construction industry fell 4.1 per cent and the transport, postal, and warehousing industry by 5.2 per cent.
These falls reflected the impact of lockdown measures as building sites shut down and non-essential workers were told to stay home.
Parts of the transport industry, such as air transport, were also affected by the restrictions on travel.
For the statistics purists this is now the first officially recorded single quarter of contraction New Zealand’s economy has seen in nine years.
The country narrowly avoided a double-dip recession in 2011 after the Christchurch earthquake stalled the recovery from the global financial crisis.
New Zealand’s 1.6 per cent decline in economic activity in the March 2020 quarter compares to a 0.3 per cent fall in Australia.
In the same period there was a 2.1 per cent fall in Canada, a 0.6 per cent drop in Japan, a 2 per cent decline in the United Kingdom and a 1.3 per cent contraction in the United States.
New Zealand’s annual GDP growth for the year ended March 2020 dropped to 1.5 per cent, compared with 3.1 per cent growth in the year ended March 2019.
Annual growth in GDP has been generally slowing since December 2016, when it was 3.9 per cent.
The uncertainty around measuring GDP during the period had meant there was a wide range of forecasts.
It may also see the final figures adjusted over time.
The unprecedented nature of the rapid economic shock caused by the Covid-19 lockdown has meant that some data sources and methods have had difficulty measuring Covid19-related effects, Stats NZ said.