The New Zealand economy shrank 1.6% quarter on quarter in the three months to March, the biggest drop in nearly 30 years as the impact of the country’s total lockdown to control COVID-19 hit hard.
The New Zealand lockdown was harder than the one in Australia, although both countries closed their borders and brought in tough quarantine rules for visitors. Australian GDP fell by just 0.3% in the March quarter.
Annual GDP growth for the year to March dropped to 1.5%, compared with a 3.1% growth in the year ended March 2019.
It was the first quarterly fall since December 2010, deeper than the 1.0% forecast by economists but better than the 2.4% slide forecast by the Reserve Bank of NZ.
For that reason NZ economists expect the central bank to sit on its hands and do nothing to monetary policy when it meets next week.
“The 1.6 percent fall surpassed quarterly falls in the GFC and was the largest quarterly fall since the 2.4% slide in the March 1991 quarter.”
But like all economies, economists expect the current June quarter to see a much steeper fall – forecasts call for a 16% slump quarter on quarter.
That would put New Zealand in its first technical recession, defined as two straight quarters of contraction, since 2010, although a recent easing in lockdowns is expected to aid recovery in the second half.
Statistics NZ said service industries contributed the most to the drop in activity, making up almost half of the overall fall in GDP.
Hospitality (accommodation, restaurants, and bars) was among the most affected industries, falling 7.8%, as tourism fell after the border was closed to slow the spread of COVID-19.
The construction industry saw a fall of 4.1% and the transport, postal, and warehousing industry fell 5.2%. Air New Zealand’s bailout is a testament to the impact of the lockdowns and border closures on the transport sector (see separate story).
Household consumption fell 0.3%
“Spending fell on long-lasting products (durables) such as motor vehicles. A fall in services, driven by accommodation, international and domestic air passenger services, and recreational services, reflects the drop-off in travel as the pandemic spread. Households were not able to buy non-essential goods and services as such businesses shut down.
As in Australia Statistics NZ said “a strong increase in spending on short life-cycle goods offset these falls, as households prepared for the lockdown by buying supplies, from flour to toilet paper. The different results for consumption of durable and non-durable items showed the changing behaviour of consumers in response to COVID-19.”