Our take on the latest Gross domestic product (Thu 18 Jun 2020)
Economic activity contracted 1.6% in March
Services exports down 7.7% over the quarter
16% decline in GDP likely in June quarter
The key numbers...
- The economy’s quarterly contraction in March was the biggest since 1991, providing a reality check to the air of optimism that was brought by last week’s move to Alert Level 1.
- A 4.5%pa decline in exports was the biggest drop since 2008. Travel restrictions caused a 7.7% quarterly fall in services exports, while forestry primary products; textiles, apparel, and leather products; and chemicals, rubber, plastic, and other non-metallic products also recorded substantial declines, mostly due to economic disruption in China reducing demand.
- Although household spending only fell by 0.3%, this drop was still the biggest since 2009. Spending on transport (-8.3%), restaurants and hotels (-7.3%), and clothing (-4.6%) recorded significant falls, but these were largely offset by panic spending on consumables such as food, alcohol, and toilet paper.
- The domestic economic weakness was mitigated by a 5.6% plunge in imports. This drop was driven by a mix of supply issues in China affecting consumer goods, border restrictions affecting international travel, and small signs of weakness in imports of capital equipment for businesses.
National economic growth
Production-based GDP
...and our reaction
- The March quarter result might be the worst in 29 years, but this fall will be dwarfed by a 16% collapse in activity during the June quarter due to the COVID-19 lockdown.
- New Zealand’s GDP figures were worse than results in the likes of Australia, Japan, and the US, and the same is likely to be true of the June quarter due to our stricter lockdown.
- New Zealand’s good public health outcomes puts our domestic economy in a good position to bounce back in the second half of this year.
- However, our heavy reliance on exports mean that outcomes overseas will have a major influence on our recovery. Continued high infection rates in many countries, alongside recent new flare-ups in Beijing, suggest that global demand will continue to be a drag on our export prospects.
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