New Zealand just escaped recession, GDP grows by 1.6% in March quarter

Stats NZ revealed today that the Gross Domestic Product (GDP) in the March quarter grew by 1.6%, after falling by almost 1% in December. 

This has beaten the RBNZ’s expectation of a dip in GDP by 0.6% again. The economists who were predicting a lift in GDP due to the latest economic recovery have turned out to be true.

Strengths and Weaknesses

In the latest update by Stats NZ, the services industries was the largest contributor to the GDP growth. It showed that New Zealanders spent more on accommodation, eating out and purchasing capital goods such as furniture, audio equipment and vehicles. This aided the retail spend.

Wholesale trade and construction activity saw a big jump in the March quarter. There was also an investment seen in plant and machinery and other equipment buying after low activity in 2020.

However, due to closure of borders and travel restrictions, the international tourists and international students showed a marked decline. The border closure also reflected in export of services which was down by 20%. Even though travel bubble was announced, its impact has not been reflected in these GDP numbers, it is likely to reflect in the June quarter numbers.

According to Stats NZ, while the march quarter grew, GDP fell by 2.3% in the year ended March 2021 due to lockdowns. On an annual basis, several industries have fallen due to lockdowns and COVID-19-induced disruptions.

Economists Versus RBNZ

It may be recalled that the economists had predicted that it was highly unlikely that NZ might be heading for a double-dip recession, and the Stats NZ figures announced today have proved that.

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These numbers disclosed today would be of particular interest as they have an impact on the on the Reserve Bank’s (RBNZ) decision on interest rates. It may be noted that RBNZ had in its May Monetary Policy Statement (MPS) said that NZ would dip into a technical recession again — with this type of recession meaning two consecutive quarters of negative GDP.

December 2020 quarter saw a dip of 1% in GDP and according to the RBNZ, the March quarter is also likely to see at least 0.6% fall — so making for a `double-dip’ recession.

RBNZ was expecting the GDP numbers to drop again in the March quarter as well due to supply chain disruptions and closed borders, economists were of the view that a lot of economic activity had picked up well in NZ. However, there has been a visible strength in the economy-especially in retail spending — which indicated that the GDP could actually show a growth in the March quarter.

All together positive and negative factors put together, economists had seen a lift in the GDP numbers by 0.6 to 1 %.