Recession nears as GDP falls

New Zealand is probably almost six months into a recession after Stats NZ reported a surprisingly large 1 per cent drop in the country’s GDP during the three months to the end of December.

ASB described the Decemberquarter figure as much weaker than expected and forecast it would ‘‘quash any talk of 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 and 0.5 per cent for the quarter.

The figure means Stats NZ has now been able to calculate 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.

Population numbers were boosted by strong migration during the first three months of the year before the shutters came down on new arrivals.

BNZ, Westpac and Kiwibank had all been forecasting GDP to drop in the current quarter ending on March 31, prior to the fourth-quarter release.

If those predictions prove correct, New Zealand is in a technical recession that started on October 1. A recession is generally defined as two quarters of GDP decline.

The 2.9 per cent annual decline in GDP, while severe, remains far lower than the dire predictions made by most economists early on in the Covid crisis.

The OECD had forecast in June that the New Zealand economy would take a 9 per cent annual hit. It is also mild compared to the decline in most developed economies.

‘‘The dip is similar to Australia but much less of a fall than seen in the European Union or UK,’’ Stats NZ senior manager Paul Pascoe said.

The United States economy fell 3.5 per cent last year, while Britain’s GDP crashed 9.9 per cent.

Finance Minister Grant Robertson said it was not surprising numbers were ‘‘jumping around’’.

‘‘The world is dealing with the ongoing impact of Covid and there will be volatility for some time.’’

But he said the data showed the economy ‘‘remains resilient’’.

ANZ said it did not believe the new figures should change the economic narrative.

Pascoe said economic activity in the fourth quarter painted a mixed picture, ‘‘with some industries down’’ but others picking up despite the ongoing impact of Covid.

Infometrics economist Brad Olsen warned prior to the fourthquarter GDP result that there was the potential for a technical recession, saying GDP numbers were likely to be quite ‘‘jumpy up and down this year’’.

Despite the GDP disappointment, Westpac economist Satish Ranchhod said New Zealand had experienced one of the swiftest economic rebounds from Covid-19 and was on firmer economic ground than many of its trading partner economies.

‘‘There will be volatility for some time.’’ Grant Robertson Financeminister