Westpac predicts GDP will dip 0.7% without tourists

AUCKLAND: A summer without tourists will cause New Zealand’s GDP to fall 0.7% over the six months to March, economists at Westpac are predicting.

The situation would technically be a recession — which is defined as two quarters in a row of negative GDP growth.

But Westpac chief economist Dominick Stephens said while that would technically be the case, what he was pointing to was the seasonality of New Zealand’s GDP caused by the lack of international tourists.

‘‘. . . What I’m saying is the seasonal vagaries of the data mean that the data looked stronger than it really was through the winter last year, will look weaker than it really is through the summer and will look stronger again through the winter,’’ Mr Stephens said.

Overall the economy had bounced back far more vigorously than expected but 2021 was going to be a year where it was hard to find further growth, he said.

‘‘The truth is the economy has smashed more pessimistic expectations.’’

Westpac is forecasting GDP to be up just 2% in 2021 and is predicting a bumpy ride.

‘‘Tourism is highly seasonal, and there is normally a strong net inflow of people into the country in the summer months. The absence of visitors was felt keenly in the December quarter, and will be even more so in the March quarter, which would have . . . been the peak tourist season.’’

Westpac estimates that the absence of overseas tourists cost the country around 2% of GDP in the September quarter and that will rise to around 6% by the March quarter when tourism normally peaks.

‘‘This means that some of the upcoming data, once seasonally adjusted, will show the economy slowing or even going backwards. We’re expecting overall GDP to shrink by 0.7% over the December and March quarters combined.’’

The flipside was that GDP growth would be boosted in the June and September quarters by New Zealanders staying home.

‘‘Looking through this disruption in seasonal patterns will be a challenge for markets, forecasters and policymakers over the next year.’’

With international tourists largely out of the picture, Westpac says economic drivers will be dictated by domestic spending and the housing market.

‘‘What will play the biggest role in household spending appetites, however, is the redhot housing market. House prices are now screaming higher, with a 9% increase in the last three months of 2020 alone. Our analysis has long shown that financial factors, and in particular interest rates, are by far the biggest driver of house prices. And with mortgage rates at record lows, there is scope for further significant gains in prices.’’

Westpac is forecasting a 17% rise in house prices over this year, but believes mortgage rates have reached the low point for this cycle.

It expects the official cash rate to stay on hold at 0.25% until 2024, but continues to warn that when interest rates do eventually rise, house prices will fall. — The New Zealand Herald