Statistics New Zealand says there was a 'widespread drop in economic activity' in the March quarter; the fall was bigger than economists' estimates; worse is to come in the June quarter

Statistics New Zealand says there was a 'widespread drop in economic activity' in the March quarter; the fall was bigger than economists' estimates; worse is to come in the June quarter

The economy shrank by 1.6% in the March quarter - the biggest fall for 29 years - as the Covid-19 crisis started to bite, according to Statistics New Zealand figures.

The drop, which is seen as a foretaste of much worse in the June quarter, was still bigger than economists had estimated.

The March quarter’s GDP results showed a widespread drop in economic activity as travel restrictions took hold and the country moved towards lockdown, which began at the end of March, Stats NZ said.

Covid-19 effects came on top of the smaller impact from drought in some parts of the country.

“The 1.6% fall surpassed quarterly falls during the global financial crisis in the late 2000s,” national accounts senior manager Paul Pascoe said.

“It is the largest quarterly fall since the 2.4% decline in the March 1991 quarter.”

ASB chief economist Nick Tuffley and senior economist Jane Turner, who are forecasting a 17% fall in June quarter GDP noted that the fall in first quarter GDP was less severe than the Reserve Bank had expected (it expected -2.4%).

"We also expect the RBNZ will be revising its GDP forecast for Q2 higher as well, particularly given that NZ has transitioned into Alert Level 1 faster than expected and recent economic indicators have been very encouraging.

"We expect Q4 GDP will be 6% below that of the previous year’s level, which compares to the RBNZ’s May [Monetary Policy Statement] forecast of a 4.5% contraction.  The fall in H1 GDP may not be as steep as the RBNZ forecast, but the degree of bounce back over the rest of the year may be a little slower than what the RBNZ predicted in May."

ANZ senior economist Liz Kendall, who is picking a 19% fall in second quarter GDP, said now the economy has been able to exit lockdown "we are now experiencing a bounce in activity from pent-up demand".

"But the worst of the economic impact is still coming for many: unemployment is rising and many firms are experiencing difficulty, with a tourism-shaped hole difficult to fill and impossible to ignore.

"The recession will start to become evident in more lasting ways, even though the dent in GDP is past its worst.

"We will be watching Q3 high-frequency data, the housing market, business sentiment and household spending closely to get a sense for underlying economic momentum. That’s where we need to be looking to get a sense of the scope for recovery from here. While things are starting to look up, a weaker trend is expected in time, and downside risks should not be ignored."

The detail:

Service industries contributed the most to the drop in activity in the March quarter, making up almost half of the overall fall in GDP. The hospitality industry (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 fell 4.1% and the transport, postal, and warehousing industry fell 5.2%. These falls reflected the impact of lockdown measures as building sites shut down and non-essential workers were told to stay home. Parts of the transport industry, such as air transport, were also affected by the restrictions on travel.

Household consumption expenditure 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.

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, Stats NZ said.

How we compare

New Zealand’s 1.6% decline in economic activity in the March 2020 quarter compares to a 0.3% fall in Australia. In the same period, there was a 2.1% decline in Canada, a 0.6% decline in Japan, a 2.0% decline in the United Kingdom, and a 1.3% decline in the United States.

Annual GDP growth for the year ended March 2020 dropped to 1.5%, compared with a 3.1% growth in the year ended March 2019. Annual growth in GDP has been generally slowing since December 2016 when it was 3.9%.

Economists have commented that the rapidity of the economic slowdown, followed by the ceasing of much economic activity during the lockdown, would be hard for Stats NZ to measure.

Stats NZ said with its news release on Thursday that the data sources that are available on a timely basis determine the methods used to compile Stats NZ’s estimates of quarterly GDP.

"The unprecedented nature of the rapid economic shock caused by the COVID-19 lockdown has meant that some data sources and methods have had difficulty measuring COVID-19 related effects.

"Stats NZ has reviewed all data sources and methods and, using supplementary data sources, has compared and confronted them. Doing this has helped Stats NZ understand the level of activity in the quarter and apply informed adjustments where they were needed."

Economic growth

Select chart tabs »

The 'year on year real growth' chart will be drawn here.
Loading...
year on year real growth
The 'quarter on quarter %' chart will be drawn here.
Loading...
quarter on quarter %
The 'GDP nominal annual $mil' chart will be drawn here.
Loading...
GDP nominal annual $mil
The 'GDP nominal quarterly $mil' chart will be drawn here.
Loading...
GDP nominal quarterly $mil
The 'growth % per capita year on year' chart will be drawn here.
Loading...
growth % per capita year on year

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

51 Comments

31
up

Nobody should have any worry. Who cares about the real economy, when real estate agents are repeating that everything is fine. Trust them. Just a bit more money printing, more debt, indefinite mortgage deferrals and all will be onkey-dorey.

Gulp!

20
up

If it didnt ring with truth that would be funny, but its not. Debt based asset speculation is a byproduct of a growth economy. In a recessionary one, it is not because leverage operate in reverse.

A few more weeks of less that flattering news, and another lock down or two, all business will go into full lock down mod vs just the ones everyone is reading about at the moment.

And every business has a plan should it hit the fan again.

Cut cut cut.

Yep. You can't cut leases or utilities unless the businesses lights go out.

Yep, and military quarantine mess is bleeding into little business confidence that COL can safe hands handle economic recovery.
The hand-me- down, problem child infrastructure projects now selected as nation builders, a case in point.

An example of a property related story in the main stream media focusing on property price gains ...

https://i.stuff.co.nz/life-style/homed/real-estate/300037191/heres-where...

11
up

if the mugs believe it, let them have it i say... youd be mad to throw half a mil at property down there in current environment

Just wait until the smelter closes, then see how things go down there.

At that point you just play the long game. Hedge against climate change and hope local variations don't make it even colder...but bank on NZ being a lifeboat region in 50-100 years.

Anyone want to add to their real estate obsession with a map obsession? Try dialing up the higher RCP scenarios in these NIWA maps ... how long before people start referring to this kind of data when choosing where to live? https://ofcnz.niwa.co.nz/#/localCharts

In Robbo we trust, yeah right.

If Tourism industries direct contribution is 5.8% of GDP and indirect contribution another 4% so can expect the % fall one should expect if borders are colsed till end of the year and this is just one industry, not to forget damage to International Students, Fall in number of immigrants besides other sector will do to GDP.

5.8% till vaccine is the best case scenario. Economic base analysis posits that the total economic loss will be some multiple of that number. As you can not just destroy one of your export bases without their being ripple effects throughout the wider nonbasic economy. Expect the economic fallout in the short term to be some multiple of 5.8%.
https://www.slideshare.net/HamzaParacha2/economic-base-theory-75362049

Number is grossly understated. Next qtr will take into affect the entire impact of Covid. And yes house prices should go up up up....so don't wait hurry up and buy. As long as its not with my money....

Remarkable that by the end of the June quarter, New Zealand's housing wealth excluding land will reach a multiple of 4.5 times GDP. Equally remarkable that our economists,always accurate in their forecasts , treasury and RBNZ have forecast GDP increasing to around 380 Billion on an annual basis by June 2023 ,which all things being equal should see aggregate housing wealth rise to 1.55 trillion an increase of 300 billion from today.

Showing my age, but what happened in 1991?

Japan asset bubble pop, and before that Iraq invading Kuwait (effecting oil). I was a baby at the time, but I'm going off Wikipedias list of crashes! Any older Kiwis about who can shed some light?

Ruthanasia

The changes were so rapid that unemployment went up dramatically. It was so bad unemployment peaked at 11% in the mid 90s. This is why National claim they are so good at managing an economy, and Muller's recent speech he distanced himself from the rapid changes.

And it brought about MMP. As a curb on the excesses of government power.

Yes, MMP was a brilliant coup. Create a minority-rules system with the majority of the population not bright enough to realise what they voted for. 101 playbook on how to destroy democracy from within...

Essentially, MMP entrenched what the voting public were rebelling against...neoliberalism. We wail about bring prescribed a watersaving showerhead...meanwhile our freshwater is being bottled and exported to China...hows that looking people of Auckland?

FPtP was completely broken and useless, change was needed. Personally would prefer STV or MMP with the threshold lowered to 2%, teh 5% threshold is pure BS.

national fixed the economy by cutting spending everywhere
https://teara.govt.nz/en/photograph/33885/the-mother-of-all-budgets

Yes shortly after the BNZ had almost collapsed as well.

Its not so much what happened in 1991 its what happened prior. Currency crisis 1984, devaluation of currency, floating the dollar, removal of agricultural subsidies all by 1987...agricultures international markets crashing....then the stockmarket crashed in 1987...in isolation any one of those huge events was a serious challenge for the economy which had been in decline since the 1970s...then came some of the worst timed policy implementations of them all and in rapid fire succession...1991 The mother of all budgets and soon after the Employment Contracts Act followed by wholesale selloffs of state owned companies. Imagine trying to stay employed or in business with all that going on? I was amazed anyone had the financial confidence to buy a loaf of bread let alone a house! What it illustrates is this country's economy goes backwards more than it ever goes forwards, kinda like the warriors at mt smart.....

Transition to a market economy ...

Only people who are aged late 50's or above will have had that experience firsthand during their working careers ...

Most people today are unaware ...

I was there. Made redundant. Best thing that ever happened. You need to redirect talent not protect what was.

it was terrible, I'm 45 so watched the parents of all my friends fall to pieces in front of me as the reforms basically destroyed them and the country as we knew it to be, little wonder David Lange ended up the way he did, how must he have felt? ...the inequality problems we have now were perhaps not so widespread then but that period of economic piracy certainly entrenched it. Meanwhile across the Tasman, Bob Hawke looked our way and said...'Are you nuts?' The results speak for themselves...who has the highest FDI percentage of NZ?

Two stories stay with me:

1) a close relative lost their business and their home. The family ended up on the wait list for social housing. After 6M, they moved into social housing. The patriarch suffered from mental health issues for the remaining 23 years of their life. It affected the entire family - wife & kids.

2) a friend of a businessman I met. The businessman's friend worked in financial markets. He was heavily leveraged and got caught out in the share market crash. Lost his home & everything. Went out on the front lawn and committed suicide leaving behind family to pick up the mess.

First quarter ending 31 March only had a couple of weeks of lock down?

Recall when aus disclosed negative first quarter gdp the headline was 'Australian now in recession' as the second quarter is definitely going to be negative the only question was if the first quarter fell below zero.

So, NZ officially in recession and next quarter will see an even bigger fall in gdp eclipsing 1991 -

Local covid cases mean nothing, NZ is as open an economy as there is and our economic future depends as much on the rest of the world stopping covid which isn't looking too flash.

Buckle in.

Indeed, we ain't seen nothing yet. Q2's numbers will be horrendous.
https://www.youtube.com/watch?v=w3fRBzRngdc

Well at least we know whats coming .

I have a beef about the Banks ..............everyone has taken a knock except the Banks . Deferred payments are not write-offs and the interest income is accrued .

The Banks continue to lend, a good thing, however in some cases recklessly in my view , adding fuel to the speculative bubble They should be reigned in .

If we had reckless lending provisions in our legal system , we would see Banks and second tier lenders behaving far more carefully right now .

Reckless lending is where a Bank or lender lends without thorough due diligence , and without stress testing its lending before the loan is made , often leading to defaults .

Lending for highly speculative activity should be discouraged

I wouldn't be so sure, I think banks are definitely taking a hit on profit margins and even though they'll still be making money, the reduction in profit will have them feeling nervous. New lending is being filtered with a fine toothed comb - any of those specuvestor ponzi party FB pages confirm banks are now saying no to people they originally said yes to. I saw a case of someone with a $65k deposit wanting lending on a $675k property, and the bank said no, even though LVR restrictions have been removed. They're obviously anticipating decent falls in prices.

I completely agree that banks have previously been recklessly lending, but I think the recklessness is catching up with them now and times are a' changing.

No need to guess
Interest income received by Retail Banks on Mortgage Interest down $68 million March 2020 Qtr
Interest expense paid by Retail Banks on Term Deposits has fell $233 million March 2020 Qtr
https://croakingcassandra.com/2020/06/13/interest-rates-2/#comment-52232

@pin , I disagree , the banks are making a fortune, more than ever before

Their borrowing costs have fallen through the floor , you cannot get 2% on a 100k deposit .

So they are borrowing your money at around 1 to 2% , and they continue to lend on :-
Credit cards ( close to 20% per annum )
Overdrafts (12 to 20% per annum )
Vehicle and asset finance (over 10% pa )

Name one type of business, other than a Bank , that makes up to 1000% per annum on its borrowed capital ?

Here's some extra questions for you to mull over Boatman.

Why do private corporations have the right to create our "money" supply? Who gave them this right? Who do reserve/central banks really support, given they regulate/manipulate at the bottom of the cliff with interest rates, rather than at the top of the cliff with debt supply? Why should entire sovereign nations tremble with fear at the threat of banks collapsing? Why do we as free peoples accept and choose debt enslavement?

Unfortunately, the RBNZ (which by law is supposed to guarantee the financial stability of banks) are the first to promote the banks' reckless lending, by suspending the LVR requirements, significantly reducing the Core Funding Ratio, etc....
the RBNZ are the first to be blamed, even before the banks.

Well said Boatman, your comment is the first post I have seen identifying that the Bankers are the only organisation that has not shared the pain aside Public Servants and both will feel the wrath of their customers if they fail to satisfy the reasonable expectations. Of course Govt could/should if they fail step in with an excess profits tax for Banks and disestablishment of say 50% of public servants and if needed sub contract to the private sector.Yes I am hinting that public servants are only 50% effective apart from keeping their seats shiny.

Bearing in mind our main trading partner, China, was in lockdown for a significant part of the March quarter is this drop not a reasonable number. Forestry for one was badly affected pre NZ lockdown as orders dried up.
Don't get me wrong, things are bad and the June quarter will he horrific but I can't be surprised at the March quarter.

10
up

Take a look at America, the fed is in overdrive, buying anything and everything, including junk rated bonds. The fed set up BlackRock to buy what the fed can't legally buy, with a cool $750billion, and they,(BlackRock) are allowed to buy their own stock with that! Good times all round. The "save everything bubble", turning the usa into a laughing stock. It is now impossible to have any faith in the financial system, and if the usa is the leading light, then there is no hope.
Same game here in nz, and the stock market and the housing market and the rbnz printing billions, only mirror the fed.
It's time to take a closer look, forget msm.

The longer the Central Banks try to cheat the system, and the longer the housing (and other assets) Ponzi scheme is kept in life support, the bigger the mess once market forces start to reassert themselves.
The USA are far from the leading light: they have a dystopian social system and a bankrupt economy in terminal life support, trying to survive on Fed money printing and on increasing tariff protectionism.

I must be missing something when Hertz is broke yet people are buying their shares and the likes of JC Penney/Sears Roebuck are closing stores wholesale and Mall owners suffering a non payment of rent crisis. I thought a Great Reset was coming but global events suggest a revolution and possibly a violent one judging by the protests in many western countries, perhaps this is a revolt against the Elites/UN Plans 21&30 and their New World order resulting in a move those perceived as public enemies moving to another world.

11
up

Here we are on 18 June before we get the official numbers for a period ending two & a half months ago. Would someone please remind dept of stats this is the 21st Century, not the 19th.

Ah, but they're 'Adjusting' ... which is just aboot as good as PDOOMA....

Out of the mouth of Jerome Powell.... “We aren’t even thinking about thinking about the consequences of our actions.”

Has he just confirmed there is no plan?

The economy is a bit like an all night bender, 2020 came along, and we started sobering up so the bar decided to put unlimited shots on the table and said 'here you go', don't make too much of a mess.

Putting my head out the hatch reading this but definitely seems it ain’t over yet and continuing to keep the hatches battened down.
NZRB and Grant doing their best to ensuring a following wind and waves but it is really still currently a very stormy wild ride.

I agree and recall an old Yorkshire saying - when in doubt do nowt. I spent nothing outside of essentials during the lockdown and will not be changing that habit for quite some time.

Depression: a decline in real GDP exceeding 10%, or a recession lasting 2 or more years.
We've just had an annualised drop of 8% for 1Q 2020 compared to previous year. Seems pretty certain that we are in a Depression. 2Q GDP announced 2 days before the election.