Gross domestic product

Lockdown slashes GDP - but how much will come back?

17 Sept 2020

Gareth Kiernan

Our take on the latest Gross domestic product (Thu 17 Sept 2020)

GDP shrank 12.2% in the June quarter

Tourism, mining, construction, and non-food manufacturing hit hardst

September quarter will show how much activity is still lost to COVID-19

The key numbers...

Economic activity contracted 12.2% between the March and June quarters (seasonally adjusted), with the Level 4 lockdown having a massive effect on output in many industries and putting New Zealand formally into a recession.
The largest declines generally occurred in industries where activity was also affected by border closures and other restrictions at lower alert levels.
Accommodation and food services activity shrank by 47% (seasonally adjusted) in the June quarter and has now decreased 51% since the end of last year. The industry’s activity in June was on par with activity way back in 1993.
Transport, postal, and warehousing activity decreased 39% in the June quarter (seasonally adjusted) and arts and recreation services fell by 33%, while administrative and support services shrank 30% due to reduced activity for travel agents and employment services. Other services sectors were generally less affected.
Mining activity fell 44% (but is always volatile), construction was down 26%, and activity across the non-food manufacturing sector declined by between 13% and 39%.
Import volumes slumped 25% over the quarter, compared with a 16% fall in export volumes. The 40% decline in services exports, which includes spending by overseas tourists, was much larger than the 33% fall in services imports, which includes New Zealanders holidaying overseas. However, modest decreases in most of our primary exports mitigated the overall fall in exports, while imports of capital and intermediate goods plunged in line with reduced domestic business activity.

Quarterly changes in activity

Selected industries, change Mar - Jun 2020 (seasonally adjusted)

...and our reaction

Today’s result was slightly better than market expectations of a 13% contraction in GDP for the June quarter, and considerably better than the fears of a 15-20% decline that prevailed a few months ago.
The twin effects of a supply shock caused by the government-mandated lockdown and the demand shock flowing out of border closures, job losses, and lower business and consumer confidence make it difficult to read much about current or future economic activity from this data.
New Zealand’s recession will technically be over once September quarter data comes out, but the persistent threat of COVID-19 and ongoing restrictions such as border closure look set to keep business investment and household spending subdued, meaning the actual hit to the economy will persist for much longer.
September quarter data should give a much better indication of how well the economy is operating at COVID Alert Levels 1 and 2, notwithstanding the 2½-week period where Auckland was at Alert Level 3. This partial lockdown is likely to have reduced nationwide activity by about 1% below the new “normal”.
Current market estimates for September quarter GDP see activity down between 1.5% and 7.1% from September 2019. Our expectations lie towards the weaker end of that range, although we are about to begin preparing a new set of forecasts that will be published in the second half of October.

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Gross domestic product

Lockdown slashes GDP - but how much will come back?

The key numbers...

Quarterly changes in activity

...and our reaction

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