NZ GDP to contract in June quarter, but a quick bounce back expected in Q3 

Summary

• New Zealand’s quick and early tactic to deal with coronavirus has helped its economy to pick up much earlier than others, but strict lockdowns imposed especially in March-June, significantly decelerated NZ economy.
• NZ GDP figures, due to be released on 17 September, are expected to show the biggest economic contraction on record, with an anticipated drop between 11% to 15%.
• Economists at various banks are predicting a drop in GDP for Q2, albeit with a projection of a bounce-back in the economic activity for the September quarter.
• NZ economy has been faring better than expected, even after level 3 alert in Auckland.
• ANZ September Business outlook data showed that business confidence lifted 16 points, with an improvement in many forward-looking indicators for September even after resurgence of virus.

New Zealand government led by PM Jacinda Ardern has garnered international accolades for pursuing the policy of going tough and going early in imposing lockdowns to curb the spread of coronavirus.

NZ’s coronavirus free run for 102 days ended in August when 4 new cases were detected in Auckland. The resurgence of virus resulted in the imposition of lockdown alert level 3 in Auckland, which was later reduced to alert level 2.5 on 31 August while the rest of the country stayed at level 2.

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New Zealand has 1,801 (confirmed and probable) cases of coronavirus and resulted in 24 deaths, as on 15 September 2020.

The global outlook has been quite weak but robust, and well-targeted public health measures have permitted the economic activity of the nation to pick up sooner than other countries around the world.

However, strict lockdown from 25 March to 8 June hampered the economic activity of the country during that period, and the blow that the economy took was amongst the worst.

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NZ economy is bracing up for a severe plunge in economic activity for the June quarter as during the quarter, the country closed its borders and imposed a nationwide lockdown in its response to the pandemic.

Record quarterly fall expected in GDP for June

GDP numbers for 3 months from April to June are set to witness the biggest economic contraction on record with estimated GDP to lie in the range of 11% to 15%.

The June quarter GDP numbers, due to be released on 17 September, will officially confirm the news of NZ falling into recession, which is defined as 2 consecutive quarters of negative GDP growth.

NZ economy had shrunk by 1.6% in January to March quarter, marking the biggest contraction in 29 years. It was the first quarterly fall since December 2010 quarter and the highest decline since March 1991.

Let’s have a look at what economists at various banks have predicted for NZ GDP ahead.

ASB’s latest Quarterly Economic Forecast for September shows that the NZ economy would plunge by 11% in Q2 GDP, and by 5% in annual GDP of 2020. The bank also stated that the lockdown imposed in August is estimated to cut off 8% from the weekly GDP of NZ and cost over $1 billion in lost economic activity.

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Stephen Toplis, BNZ head of research, revealed that a 13% plunge is likely to be seen in Q2 as has been predicted by BNZ economists. The largest sectoral falls will be witnessed in hospitality, tourism, rental hiring, arts and recreation and real estate services.

RBNZ anticipated a drop of 14.3% in Q2 GDP in its August Monetary Policy Statement, while ANZ bank has projected a 12% drop for the June quarter GDP.

Economists at Kiwibank have forecasted a 12.5% drop in Q2 and Westpac has predicted an 11.5% drop in GDP for the June quarter.

GDP expected to rebound in September

RBNZ expects NZ economy to pick up by 12.2% in September, but it has forecasted that the economy will shrink by 5.8% on the whole during 2020. ANZ economists have also stated that Q3 would witness the sharpest quarterly economic expansion of NZ.

Kiwibank economists stated that a modest rebound in economic activity is likely in Q3 with a 10% jump in the September quarter, as the economy stays persistent in its recovery even after a level 3 lockdown in Auckland. They have predicted that the economy is expected to return to pre-coronavirus levels of GDP by early 2022.

Westpac has estimated GDP to surge by about 8% in the September quarter followed by near 4% rise in the quarter of December. This would result in GDP to be about 5% below its pre-coronavirus trend by 2020, which came about majorly due to downfall in international travel and tourism amid border restrictions.

As per Michael Gordon, Senior Economist at Westpac, sectors that managed to be safest during such challenging times were those that were able to operate in Alert level 4 restrictions, either because of being involved in essential goods or being able to maintain continuity in work from home.

Food manufacturing, finance, agriculture and some professional services fall into the essential goods and services category, though, few have still taken a beating due to a fall in the domestic demands amid lockdown.

ANZ September survey results reflect a pick-up in business confidence in September

ANZ Bank’s preliminary estimates of its Business Outlook for September revealed that the business confidence picked up 16 points, but about 26% of businesses anticipated things to get worse, down from 41.8% in August.

However, there was a lot of progress in forward-looking activity indicators even after the resurgence of the virus. Some of the highlights of the ANZ Business Outlook Survey are as follows:

Sharon Zollner, Chief Economist, ANZ stated that a considerably higher proportion of organisations are expecting higher costs than the expectation of a rise in prices, representing softened demand atmosphere in general.

However, the latest indicators have revealed that business sentiment has started to progress, though NZ is still at Alert level 2 and 2.5.

She stated that some resilience was witnessed in the last month, as the statistics did not fall much from the resurgence of the virus, but a rise in the figures is noteworthy.

Though the NZ economy is expected to plunge in Q2 amid Level 3 and Level 2 restrictions, a rebound is expected in the September quarter if there is no fresh lockdown imposed in future.