Economists say NZ dodged recession

Economists say it’s likely that New Zealand dodged a technical recession in the early part of this year.

A recession is most often categorised as two consecutive quarters of negative GDP growth. If data due on Thursday shows there was a fall in the March quarter, after a 1 per cent drop in December, that would put the country in that category.

Earlier in the year, it was expected that New Zealand would go through a ‘‘double-dip’’ recession, before getting back on track to recovery after the Covid19 lockdown. After New Zealand returned to level 1 last June, GDP jumped by a historic 14 per cent.

But economists said it was likely that there was a small degree of growth in the quarter.

ANZ economists expect production GDP to lift 0.5 per cent quarter-on-quarter, pushing annual growth to 0.9 per cent.

‘‘Biting capacity constraints [such as difficulty finding labour, global shipping delays and supply bottlenecks] have arguably become a larger constraint on activity than the demand and income shock.’’

ANZ economists said it was unlikely the GDP data would make much difference when the Reserve Bank was setting the official cash rate.

‘‘With capacity pressures biting across many parts of the economy, we’re actually in a funny state of the world where a weaker print could be indicative of even less spare capacity than previously expected.

‘‘That is, this crisis has delivered a significant supply shock, making potential GDP a bit of a moving feast [and highly uncertain to boot], so it’s not as simple as more growth in Q1 equals stronger and sooner inflation.’’

They said the first quarter of the year was when international tourism was normally at its peak, so missing tourists would be more noticeable in this update. But the closed border effects were becoming harder to identify in aggregate data, they said.

Christina Leung, principal economist at NZIER, expected a 1 per cent lift.

‘‘We realise that is at the higher end of the range of forecasts out there, but many of the indicators of activity in sectors such as construction, wholesale and retail trade are pretty strong for the March quarter.

‘‘Given the large changes we have seen over the past year as a result of Covid disruptions particularly around lockdowns, and with Stats NZ having used some alternative data sources to compile its GDP estimate, there is a greater than usual degree of uncertainty over forecasts.’’

At Infometrics, Brad Olsen said his team shared ANZ’s prediction.

He said construction, healthcare and government activity had helped keep economic activity in a solid position and the strength of domestic tourism and the general economy meant parts of the tourism sector might have weathered the summer period better than first feared.

ANZ economists expect production GDP to lift 0.5 per cent quarteron-quarter.