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NZ faces Covid-19 crisis with annual economic growth having slowed to 1.8% in the December quarter - a 6-year low

NZ faces Covid-19 crisis with annual economic growth having slowed to 1.8% in the December quarter - a 6-year low

New Zealand is entering a major downturn on the back of annual economic growth falling to a six-year low, as expected.

Gross domestic product (GDP) growth slowed to 1.8% year-on-year in the December 2019 quarter, according to the latest Statistics New Zealand figures.

Annual GDP growth hadn’t been this sluggish since the December 2013 quarter. It fell from 2.3% in the September 2019 quarter.

Quarter-on-quarter, growth fell to 0.5% in December, from 0.8% the previous quarter.

The figures are slightly stronger than that forecast by the Reserve Bank (RBNZ) in its February Monetary Policy Statement (0.4% q/q, 1.6% y/y). They are on par with market expectations. 

They show forestry activity was already down -6.7% compared to the December 2018 quarter. Accommodation and food services were down -0.4%, and food, beverage and tobacco manufacturing -1.5%.

On the upside, the agricultural sector faces COVID-19 having experienced annual growth of 0.2%, manufacturing 0.3%, construction 3.2%, wholesale trade 1.0% and arts and recreation 3.9%.

The impacts of COVID-19 will be seen in March figures, due for release on June 18.

ANZ senior economist Liz Kendall said: "For the GDP outlook, we are thinking about a wide range of possible scenarios, with a contraction perhaps in the range of 1-9%, depending on how developments play out.

"Our best guess at this stage is that the economy will contract 3-4% this year, even with fiscal and monetary stimulus. Impacts at the larger end of this range could be seen if there was a sustained outbreak here, if credit markets were to seize up, or both."

Kendall expected the RBNZ to announce a quantitative easing or a government bond buying programme soon.

Westpac chief economist, Dominick Stephens, sees this happening within the next week. 

It was only on Monday that the RBNZ cut the Official Cash Rate from 1% to 0.25% and said it was preparing for bond purchases. 

Here's a snippet from a Statistics New Zealand press release: 

“Growth this quarter was led by a 0.6 percent rise in the service industries, while primary industries grew 0.5 percent,” national accounts senior manager Ruvani Ratnayake said.

“Growth was mixed at the industry level, with 11 of the 16 industries recording increases.”

Rental, hiring, and real estate led growth in the service industries with a 1.1 percent rise. Public administration and safety (up 2.8 percent) was another notable contributor. Transport, postal, and warehousing was also up 1.5 percent.

“Mining led the growth in the primary industries sector,” Ms Ratnayake said.

Goods-producing industries grew 0.1 percent in the December quarter, driven by increases in electricity, gas, water, and waste services, and construction. Offsetting these increases was a fall in manufacturing.

Household spending grew 0.3 percent this quarter, as annual growth slowed to its lowest level in six years, at 2.7 percent.

“Reduced spending on short shelf-life goods such as food, beverages, and tobacco slowed the growth in household consumption this quarter,” Ms Ratnayake said.

GDP per capita rose 0.2 percent this quarter, following a 0.5 percent increase in the September 2019 quarter.

Annual GDP growth for the year ended December 2019 was 2.3 percent, compared with a 3.2 percent growth in the year ended December 2018.

Annual growth in GDP has been slowing since December 2016 when it was 3.9 percent. From the December 2016 year, annual growth in the services industries (which make up about two-thirds of the economy) halved from 4.1 percent to 2.1 percent in the December 2019 year.

The size of the economy in current prices was $311 billion.

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52 Comments

22
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In short, the NZ economy had an arm chopped off before going into battle with Covid-19!

15
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How can this be when we're living up large on so much cheap debt, and - as investors are keen to point out to us - property investment is PRODUCTIVE!

How can this be when we're living up large on so much cheap debt, and - as investors are keen to point out to us - property investment is PRODUCTIVE!

The cheap debt and 'property investment' malarky is all about promoting consumers spending: the be all and end all for the health of GDP (anyone can challenge me on that), particularly in countries like NZ and Australia (remember the 'good problem to have' quip?). More than enough indicators that the goose was well overcooked by the time the virus was little more than a story about someone eating a bat in China.

Clearly, all the extra cash injections went into house market. Just look at how housing market was doing for the past a few months.I hope this will make those people, who think property investment is productive, understand the really meaning of productive sectors.

Investing in new houses being build is a very productive investment. A huge flurry of economic activities (very real and productive activities) is resulted when new houses are built (either by demolishing some old properties or developing new green fields). Inflating the existing houses values is not. It is not wise to paint investment in properties in such a black and white.

Investing in new houses being build is a very productive investment. A huge flurry of economic activities (very real and productive activities) is resulted when new houses are built (either by demolishing some old properties or developing new green fields). Inflating the existing houses values is not. It is not wise to paint investment in properties in such a black and white.

Yes. Developing nations are doing this (the productive side of property investment). There's really no reason why NZ cannot do similar. All it takes is willpower.

Yes, but most New Zealanders missed out on the construction boom because, from the very beginning, the policies around them weren't designed to be inclusive (courtesy of NZ National). The guys at the helm (Key, English et al) made sure money borrowed from overseas market by foreign banks was pumped into house building activities with the help of imported material and foreign workers.

Now when those sectors are about to implode, as they were doomed to, we should use taxpayer money to bail them out.

Advisor are you suggesting that the Helen Clark's policy was substantially different? house prices did increase more under their watch. Labour and National have been equally bad. Equally hopeless. Equally lacking vision and leadership. NZ as a whole does not know where they can go. There is no vision for NZ as a country. And by vision I do not mean things like "a society where there are no poor people, where everyone can realise their true potential, where children do not go hungry" and other catchy statements like that. by vision I mean the ability to see a path that will take us to a better place and the ability to lead on down that path.

But then, a bunch of us voted John Key in because he campaigned on fixing these issues.

Unfortunately once he got in power there was no such housing crisis.

It is, but not the same sort of productivity as building something like a factory that continues to generate income.

It's only a scratch. I'm getting better.

And how many bank economists out there were spruiking property who would have known full well where the data was heading?

An exceptionally fiscally prudent government!

You will get an extra $25/wk on the bene.

Exactly what i always wanted!

You like that benefit? You should try being a banker.

11
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We were already heading down and were due for a recession without the coronavirus. Emerging markets have been in turmoil since 2016. This can't be blamed on any particular political leader or party either, even if the charts look like they turned at the election. It's just the end game of Keynesian economics. Print print print, more debt, more consumption, less savings, less investment. It cannot continue without rapid population growth, which the world no longer has.

The solution is the separation of money and state, and it cannot come soon enough. We have to take the gun out of our own hands.

11
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"This can't be blamed on any particular political leader or party " - Good luck with that. It's all Jacinda's fault, according to some very intelligent, highly educated experts in the comment section.

Yes and the opposite side think Obama's economy was wonderful and Trump messed it all up. Those people are sports fans, they always boo the other side no matter what.

CJ you will happily blame everything on National government and try to portrait Labour as excellent. The reality is both Labour and National have been as bad as each other and clueless and helpless since NZ lost its monopoly UK market with excellent prices and margins. NZ has been on a downturn since then and no government left or right has been able to do anything about it.

"and try to portrait Labour as excellent" - citation needed...

Is it govts. fault or we, the people?

I will not call it fault. Things changed and NZ was not able to cope. But since government is much more strong than the indvidual and that in NZ education, health and economy is controlled by government, then i would say inability to cope with change (the % that can be attributed to choices as a great % is absolutely beyond the scope) is more attributable to government than people (government choses what to teach, how to run universities, how to tax etc)

Jacinda may not have created the trouble machine but she sure was happy for it to run as long as it brought her the cash needed for her to woo her voters with election treats.

It's just the end game of Keynesian economics.

I wouldn't be so sure about that.

Why bother comment if you're not going to say anything?

I did say something and I'll reiterate: "I wouldn't be so sure about the end of Keynesian economics." Why? Because much of the developed world appears to be dependent on lifting aggregate demand.

Yes, lifting aggregate demand is the name of the game for Keynesians. Do you think it will succeed this time, or more importantly, indefinitely?

I think the wealth effect phenomenon will be neutered to some extent. That is not what the ruling elite want.

Well they Shaw & Co certainly got inside our heads.
$5 trillion dollars to move the temperature gauge within the margin of error.

Putting farmers in a mind bending funk.
Frightening most school children.
Stopping capex transport projects.
Verbaling the Australians
Slagging off the hospitals
Running an international PR program that fits with the Hollywood Democrats, Clinton view of the world & Jeremy Corbyn UK Labour style of work.

The economy was not like this when they got here.

Has RBNZ announced QE yet? They're taking their sweet time about coming to terms with this. Ideally they'd get out in front of the curve.

12
up

Ideally they'd shut up shop, go home, let the markets set interest rates and let the economy reach a new equilibrium.

Ideally they wouldn't just reinflate asset prices, as if that's what we need right now.

Bwankers are begging for a "small loan of $15-20 billion per year" right now.

If the central bank, government and bankers destroy pensioners and young folks' savings to bail out speculators then both bankers and property folk are going to pariahs in NZ society.

Could turn into a witch hunt.

Will not be surprised.

11
up

HOLD ON A MOMENT ................. Coronavirus was not even on the NZ radar in December 2019 , and the first death in China was only reported on 13 January 2020

So the economy was on the RERE ROCKSLIDE (Google it !) before Covid had even started

Yep

11
up

And the Labour government had forecast almost 3x this growth rate in their election year budget assessments.

And still nobody in the media ever mentions this disconnect, even in passing.

From memory both National and Labour used 3% growth, forever, in their election campaign costing.

...and they both use the Treasury Department's forecasts.

Treasury also trimmed expected surpluses for 2021 and 2022 as economic growth slows amid heightened risks from factors such as the U.S.-China trade war and Brexit uncertainty. The growth forecast for the current year was cut to 2.3% from the previously forecast 3.2%.

https://www.reuters.com/article/us-newzealand-economy-budget/new-zealand...

See the below response, and the link to the PREFU Labour budget directly from their website for the Labour GDP future growth expectation prior to the election. Yes, they have been using ever more modest growth estimates since they have gained a coalition.

GV,

Your memory, at least in regards to Labour, is incorrect. See this: https://d3n8a8pro7vhmx.cloudfront.net/nzlabour/pages/8301/attachments/or...'s_Fiscal_Plan.pdf?1504048898

or go to: https://www.labour.org.nz/fiscalplan

and go to the bottom of the page and download the PDF of the Labours fiscal plan (their fiscal plan put forward prior to the election, yes "that" one...).

Then go to page 17 of the document and note the "memo" about the nominal GDP for each fiscal year. You will have to do maths to sort out the YoY GDP growth, which should be a rather simple task. Note that last year they estimated 4.92% GDP growth, and the most recent year they forecasted 4.72% GDP growth. The first, they were off by around a factor of two, and the second they were off by a a factor greater than 2.6, if 1.8% is the current expectation.

What I cant' figure out is how GNP doesn't contract by far more in the next 12 months.
$40 Billion Tourism/Hospitality could easily be $20 Billion. Billions lost in Foreign Learning Institutions & Tertiary Education, and won't Retail be down heaps as well? Will Government Benefits replace $30 Billion or so . $30 Billion is over 10% of GNP.

Yeah.
Their economic management has been poor.
And I for one don't trust them to manage the next 3-6 months well either. Very very poor operators.
(although they say nice things)

Go out and buy a house, you can live off that capital gain. Better than having a job!

No, no. What we need is another BIG earthquake! That'll be good for GDP....

if any of us is still breathing by then..

Growth in service industry up .6% led by rental, hiring and RE up 1.1%, public admin up by 2.8% and transport and postal up 1.5%. Where was the negative growth? Was better value provided, more quantity or merely a price increase?

Goods producing industries were driven by increases in electricity, gas, water and waste services, and construction. Did we produce more water, electricity and gas or merely increase prices? Was a better waste service provided?

We could increase the price of everything and have a $400B economy, or a $1T economy. That would solve everything.

Socialist policies don't work.

Nominal annual GDPE growth for the year ending Dec 19 versus the year ending Dec18 was up 4.155%. The Dec 18 Qtr to Dec 19 Qtr deflator was up 3.6226%.

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Days to the General Election: 39
See Party Policies here. Party Lists here.