GDP figures out this week for the March quarter will show a fall in economic activity - but this will just be a taste of what is to come in the June quarter

GDP figures out this week for the March quarter will show a fall in economic activity - but this will just be a taste of what is to come in the June quarter

Well, we've been talking about it for a while now - but the recession can officially get started this week. It's our first one in nine years.

Economists are expecting that March quarter GDP figures out on Thursday (June 18) will show the economy contracted over the three months by in excess of 1%.

Technically, of course, an economy is not in recession till two quarters of negative growth are recorded. But since most of us spent the early part of the current quarter cooling our heels at home - and therefore not making the economic wheels turn - we know the recession is already locked in and it's going to be a biggie.

And in that sense the March quarter figures out this week will provide us with just the entree (given these will include about two 'good' months of activity), while the 'broken' lockdown economy of the current quarter will be the main course. That one should be horrible.

How bad it got will be very interesting to see - coupled with how sharp (or not) the recovery becomes after our move to the almost-normal Level 1. And remembering also that we got to Level 1 a lot earlier than most people would have expected.

Indeed, Westpac economists say with the earlier than expected opening up of the economy, they have revised up their GDP forecasts and now expect that when the economy emerges from the lockdown in the September quarter, GDP will be -2.8% lower than in the December 2019 quarter, before the virus arrived on our shores.

"We now forecast annual GDP growth for 2020 compared to 2019 will be -4% (previously -6%)," they say. 

They also say while there has been a sharp increase in unemployment, the earlier than expected rolling back of Covid-19 related restrictions on activity has meant that the extent of job losses had actually been more modest than they expected - having been braced for the loss of more than 100,000 jobs in the early part of this year.

"Furthermore, the opening up of the economy has meant that the weekly pace of job losses has slowed considerably, from more than 6,000 each week through April to around 1,000 currently. As a result, we have revised our forecast for the peak in unemployment to 8% (down from our earlier estimate of 9.5%), with that peak expected to occur in the September quarter."

But back on the GDP, and the March quarter, Westpac senior economist Michael Gordon's picking a drop of -1%.

"Our best guess is that without the lockdown period, we would have been forecasting a small positive for GDP growth for the quarter," he says.

"But gauging the impact of the lockdown itself is difficult, in terms of both its true impact and of how it will be captured in the official series. Stats NZ has identified a number of issues for the measurement of GDP – for instance, some surveys are held before quarter-end, so will have missed the crucial lockdown period. They note that they have reviewed alternative data sources, and will adjust the activity figures where they feel it’s appropriate (as they did with the building work survey earlier this week).

"Consequently, the range of forecasts will vary widely. For example, the Treasury’s Budget forecasts assumed a 0.7% decline, while the Reserve Bank’s May Monetary Policy Statement projected a 2.4% drop. We suspect that our forecast of -1% will be around the middle of the range." 

ASB senior economist Jane Turner, in picking a 1.1% fall in March quarter GDP figures, also referenced the difficulties Statistics New Zealand will have had in pulling the figures together and she says the figures "should be taken with a huge grain of salt".

"StatsNZ has acknowledged methodology limitations and notes that we should expect revisions to its initial estimates of Q1 and Q2 GDP growth. Furthermore, from a policy standpoint, it’s not so much the size of the fall, but the size of the bounce back which really matters. As a result, it won’t be until we receive the Q3 GDP estimates (not released until the end of December) that we will know how much economic recovery really took place following the lockdown and what further support the economy will need over 2021," she says.

ANZ senior economist Liz Kendall is expecting first-quarter GDP to have contracted by -1.3%.

"Significant economic weakness will become clear in coming quarters and it’s going to be ugly, but the recovery will now occur a little faster," she says.

"We have revised our forecasts up slightly We now expect that GDP contracted 20-21% over [the first half of the year] as a result of the Covid-19 pandemic and associated economic restrictions. This is less than the 22-23% fall previously estimated. The upward revision reflects that we have been able to move out of alert levels faster than previously expected."

For the year as a whole, Kendall says she now expects that GDP will contract 7-9% (previously 8-10%) this year.

"The recovery will still be slow, but it won’t take quite as long for GDP to return to pre-Covid levels (end-2022 based on current forecasts, versus mid-2023 previously). We expect unemployment to peak at 10%, rather than 11%."

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32 Comments

let rich in invest and spend.

let skilled in work and build.

let students in study and become NZers later.

all will be fine.

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The CCP bot is busy this morning - must have copy and pasted his masters wishes straight off the secret codebook

I copied and pasted from the Cabinet meeting minutes this morning.

That is pretty much a very succinct summary of what will happen next.

Cheers

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I appreciate the satire however, sadly, I fear you are correct and our leaders lack the vision to try anything new and will keep trying what has been tried many times before with only middling results. The CCP utilised it's own people to pull themselves out of the mire, too bad our leaders don't have such faith in this country's people and instead see our salvation coming from abroad.

I thought the modern economic thought was to rely on private business, and minimise the reach of government. Why not just get on with it rather than complaining about lack of action?

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all been done
that how we got to this point

You have no idea how the AUS is envious of NZ-China relationship right now.

They’ll be even more envious if every NZ’er ends up with a Social Credit score.

Gold.....Careful, your Social Credit Score will be reduced for your comment. You won't be allowed to travel by bus, train or plane to visit your family at Spring Festival.

Australia is wise and saving their country from CCP attack. NZ is blind (at this stage) and will sacrifice country for sake of business!

NZ is made up of two smaller islands.. soon to be discovered in some old maps.. Australia is a huge island much harder to hide it.

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Xingmowang,

"All will be fine", just as long as we don't disrespect the anthem-the Chinese anthem that is.

You stopped building ghost cities over there? What makes you think we want more and more people all the time?

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Recession starts here....

For Many who have lost jobs or business : Depression starts here.......

Unemployment or Business loss is just another number/data until it affects oneselves.

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Yup: A Recession is when your neighbor loses his job, a Depression is when you lose your job.

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A depression is when an average worker loses a job and has no realistic chance of finding another.

Yes- need to keep an eye on other debt solutions as well as houses. A spike in these will indicate a problem long before mortgagee auctions increase. https://www.debtfix.co.nz/debt-solutions

Queenstown has been fascinating. Vehicle traffic and people at the malls has utterly collapsed in the last week. The first wage subsidy ended and I think the payment for migrants housing was meant to end as well. Not sure if the migrant one happened in real life.

NZers are having no input into what spending is happening. Everyone I talk to looks really shocked when I say that quarantine is free to the user and is in a five star hotel.

Don't worry I am sure the mega rich down there with the large houses and lake views will come out and spend over winter once the ski fields open. Its a very close and supportive community - the landlords especially?

Indeed, maybe Peter Schiff will sprinkle some gold fairy dust around the shores of his Queenstown and Wanaka properties.

The Tartan Mafia?

Ole Howard, those were the days eh !!

It really is disappointing to see business NZ going into such a tailspin, wheres the corporate confidence and inspirational leadership ?

Business leaders are talking expectations way down so that bonus payments will increase... exponentially

As small business owners our hit started in early March. Everything basically stopped. The phones, the online, the general chat-about, the traffic, everything. So this (June) is month four just beginning. We got the first wage subsidy (thank you JA & GR) & have applied for the second. Being in the events business we don't deliver anything till October so are hanging out for that, in what-ever shape or form it comes in. Still can't quite get over the fact that we didn't nail quarantine in early March which might have mitigated Level 4, but now recognise that we didn't do quarantine well, full stop. In fact we're still not set up to do it properly which is concerning. And don't get me started on test & trace. We could do with a new set of leaders but the system itself is now so dysfunctional it's just as wishy-washy where-ever you look. We need a new democracy for the new millennium. A couple of dozen decent websites should do it, then we can get rid of the dead heads.

I'm sure the Health Ministry would appreciate your advice - you do have qualifications in infection control and epidemiology?

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Dont confuse qualifications with inteligence. A few people including myself were shouting boarder lockdowns weeks before the government acted. Clearly 2 weeks earlier would have slashed a month or possibly more off the other end of the lockdown and practically all the deaths. Had we locked down only the boarders a month earlier and had decent quarantine it's possible we wouldn't have needed lockdown at all and zero cases of community transmission. Just imagine how much better off we would be now.

I agree. Friend of mine had a largish tourism focussed business and it basically became insolvent between December and January as things flew to bits in China snd business dried up. We should have gone earlier.

even up to a couple of weeks ago our border controls were still sub par, they only just started testing on arrival and before release after 14 days last week, that should have been the case months ago.
i can tell you up to before that started all that was done was every three days a health check and temp taken, what a joke, so if you had a person that showed no symptoms they would have got in and starting spreading, the only thing that has saved us up to last week is the checking before they boarded the plane.
not to mention border staff, flight crew, airport workers were not checked at all until they caught something
also the mixing of inbound people with locals or others nearly the end of isolation when they supposed to be separated so they can not come in contact
the whole system is not as robust as people think and it is not if, but when someone comes in will they catch that person early or let them infect others before they find it, i hate to be a negative nanny but what i know about the border, is it will get in again.

Here is timeline and near neighbors actions.

https://youtu.be/7JLsjz2xEdI
Bert Hofman

And the tracker of government response.
https://covidtracker.bsg.ox.ac.uk/

I wonder if the economists factored in the loss of tourist dollars? My understanding is that tourism may have been a larger export earner than milk solids, (ie the largest export earner). Also a two week quarantine spells the end of tourism from Europe. Nobody will bother coming if that restriction is maintained. Has anyone looked at the RBNZ C5 credit aggregates. Early days but they look very ugly.