Gross domestic product

Households’ summer spend-up trumps effects of closed borders

17 Jun 2021

Gareth Kiernan

Our take on the latest Gross domestic product (Thu 17 Jun 2021)

GDP jumped 1.6% in March quarter (seasonally adjusted)

5.4% quarterly surge in private consumption (sa)

Exports plunge 8.0% (sa)

The key numbers...

GDP continued its volatile run, rebounding 1.6% in the March quarter after December 2020’s 1.0% contraction (seasonally adjusted).
Household spending was up 5.4% in March (seasonally adjusted). Putting aside last September’s post-lockdown bounce, this lift comfortably beat the previous largest quarterly increase of 3.5%, recorded in 1988.
Backing up this surge in household spending was a healthy 8.8% quarterly increase in private investment spending, the biggest ex-lockdown rise since 2000. Underpinning this growth, construction activity maintained its solid performance, and it was joined by substantial increases in investment in transport equipment and other plant, machinery, and equipment.
Exports contracted 8.0% during the quarter, and a worse result has not been recorded (ex-lockdown) since 1989. The continued squeeze on service exports (ie, tourism) was to be expected, but there were weak results for several goods categories as well, including chemicals, rubber, plastic, and other non-metallic products; agriculture and fishing primary products; and other food, beverages, and tobacco.
Imports of goods continue to recover, with volumes up 6.0% from two years ago (recognising that, by March 2020, COVID-19 was starting to affect the GDP data and its components). Most residual weakness in imports is now concentrated in the services component.
Care must be taken when interpreting the quarterly numbers, with last year’s lockdown and the absence of international tourists possibly breaking the normal seasonal pattern of activity.

GDP components

Comparing growth rates over the last one and two years

...and our reaction

Today’s data shows unequivocal strength in the domestic economy: gross national expenditure is up 9.7% from two years ago, the strongest result since 2018. The domestic strength is underpinned by rampant household spending and supported by a recovery in businesses’ willingness to invest.
Highlights of growth in household spending were durables, clothing, and services. Key growth areas within the services category were restaurants and hotels, recreation and culture, communication, and household contents and services.
However, these figures do not consider the sharply reduced spending by visitors to New Zealand in some categories. Industry data shows that overall activity is still well below pre-COVID levels for transport, postal, and warehousing, arts and recreation services, and accommodation and food services.
The relatively weak goods export result is likely to have been caused by two factors. Firstly, strong domestic demand will have limited the supply of some products available for overseas markets. Additionally, disruption to international shipping routes, which constrained the rebound in imports during the second half of 2020, also appears to be affecting exports.
Amid the recovery in investment spending, we note that there was an 8.0% quarterly contraction in government investment. This result aligns with concerns that the government is struggling to progress its capex projects, which had been intended to contribute to the economy’s recovery.
Today’s data was a sharp contrast to the Reserve Bank’s pick of a 0.6% contraction, meaning the economy was almost operating at the level the Bank was expecting by the end of 2021. The effects of the massive monetary and fiscal stimulus on households are showing through. Attention must now turn to unwinding this stimulus, which seemed necessary when COVID-19 struck, but now appears to have been significantly greater than was needed.

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Gross domestic product

Households’ summer spend-up trumps effects of closed borders

The key numbers...

GDP components

...and our reaction

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