NZ economy shrinks to most significant quarterly contraction in 29 years

NZ economy shrinks to most significant quarterly contraction in 29 years


  • NZ GDP contracted 1.6% in the March quarter 2020, reflecting the impact of Alert Level 4 measures and border closures to contain the virus.
  • June quarter GDP is expected to fall further with bigger slump of activities experienced during April and May 2020 due global recession and tighter restrictions to bring down COVID-19 cases.
  • ANZ expects the NZ economy to shrink by 19% in Q2 and then a rebound of 13% in the next quarter.

New Zealand was sharing the limelight of beating the virus with élan. At zero new cases reported on 8 June 2020, NZ has lifted all its domestic restrictions. Amid such optimistic state, Statistics Office of NZ reported a 1.6% (seasonally adjusted) fall in GDP in Q1 2020. GDP numbers released on 18 June reflected the negative effects of imposing strict and early measures to safeguard the country from coronavirus pandemic.

The country experienced another setback when new cases were registered in the third week of June, after lifting up all domestic restrictions except border control. However, Jacinda Ardern, Prime Minister of NZ, did warn that new cases may surface as New Zealanders will return back home.

GDP figures slide

Annual GDP growth for the year ended on 31 March 2020 fell to 1.5% compared to 3.1% growth in the year ended March 2019. 2020 March quarter GDP fell by 1.6%, the largest in past 29 years

The 1.6% (seasonally adjusted) fall in GDP in Q1 of 2020 due to coronavirus impact edged NZ towards recession after almost a decade of economic growth. The quarterly decline was the biggest fall in 29 years since the country recorded a plunge of 2.4% in March 1991. The fall in the growth figures came due to the implementation of the travel ban and lockdown in NZ.

Economists think that the data captured was insufficient to draw a correct picture of the impact of the lockdown measures on the GDP. Economists had forecasted a drop of 1% while RBNZ had predicted a decline of 2.4% in NZ GDP for March quarter 2020.

Coronavirus first reached the country on 28 February with several active cases peaking in April. The virus affected 1507 people in NZ with a total of 22 deaths. 

NZ inflicted travel bans on arrivals from China on 3 February and later applied mandatory self-isolation for 14 days for any person entering NZ from international soil except for the Pacific region in the second week of March. The nation was put into lockdown on 25 March making all retailers but those engaged in essential services to close along with the closure of construction sites and factories. Later, after applying border restrictions, the country stepped to Alert Level 4 on 26 March.

As per Paul Pascoe, Senior Manager Stats NZ, the fall in GDP of 1.6% for first 3 months of 2020 was driven by a drop of activities in service industries which accounted for almost half of the plunge in the GDP. As tourism suffered due to closing down of border, the hospitality industry was amongst the most disturbed industry with business plummeting 7.8%.

There was also a steep drop for the construction sector along with transport, postal and warehousing industries while farming was shaken by drought in some areas.

June quarter expected to be harsher

The current quarter to June end is anticipated to produce the most significant decline in the economic activity in more than a century. The NZ government has pledged NZ$ 62 billion worth of fiscal package to lift up demand and safeguard jobs while the central bank has cut interest rates and taken up quantitative easing to bring down costs of borrowing.

Grant Robertson, Finance Minister, stated that the fall is predicted to have intensified in the current quarter due to imposition of strict restrictions (Alert level 4) in April and May as well as a global recession. This would imply that NZ would enter into its first technical recession, but the easing of the controls recently is likely to support recovery in the second half of the year.

He further added that the current objective would be to protect jobs and support economic recovery as well as reconstruct through investments put together in the Budget of 2020 and COVID Response and Recovery Fund. He appreciated that stimulus measures taken in NZ have allowed the country to get back to Level 1 faster than predicted and operate at a level that other countries are not able to.

He also noted that the various stimulus and relief packages of the government including NZ$ 11 billion wage subsidy, support for small businesses and tax refunds had softened the effect of the pandemic but acknowledged that more is to be done.

Liz Kendall, ANZ senior Economist, stated that the worst of the economic impact is on its way as unemployment is increasing and many difficulties are being faced by several businesses. Coronavirus induced lockdowns have created a tourism sized hole in the economy which will be quite hard to fill up but also challenging to overlook.

She added that it is a post lockdown jump in the activity that we are experiencing at present. Still, longer-lasting effects of coronavirus induced recession will be ascertained by how and where the trend settles after it. She insisted on looking at data points related to the housing market, consumer spending and business sentiment to determine the economic scenario in the country. However, she is firm on the fact that the financial numbers are going to make a lot of noise before coming out.

The ANZ senior Economist expects the NZ economy to plunge by 19% in Q2 before a bounce-back of 13% in the next 3 months.

Some economists have lowered their predictions of the severity of the anticipated plunge after the country endeavoured hard in containing the virus and emerged out of the lockdown much earlier than expected, giving a boost to consumer optimism and retail spending partially.


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