Gross domestic product

Robust economy gives COVID-19 a two-fingered salute

16 Sept 2021

Gareth Kiernan

Our take on the latest Gross domestic product (Thu 16 Sept 2021)

GDP surged 2.8% in June quarter (seasonally adjusted)

Exports up 17% from the previous quarter (sa)

Current lockdown to hit September quarter GDP by 7.8%

The key numbers...

GDP expanded by 2.8% between the March and June 2021 quarters, which was the third-largest quarterly increase on record behind September 1999 and September 2020 (the latter reflecting the bounce back from last year’s lockdown).
The surge was almost entirely driven by exports, with the Trans-Tasman bubble pushing services exports up 63% from the previous quarter, and 6.8% from a year earlier.
The Trans-Tasman bubble had a clear net positive effect for the economy, with non-resident spending in New Zealand increasing by 76% from March (off an extremely low base), while household spending by Kiwis overseas only lifted 13%.
Although improved services exports accounted for about three-quarters of the increase in exports, there was a broad-based lift in goods exports as well after shipping disruptions appeared to weigh on March’s export results. Dairy products, metal products, chemicals, forestry, and agriculture all made significant positive contributions to the lift in trade.
Although much of the economy is grappling with overheating demand, several industries are still operating with reduced activity levels. Industries with the biggest falls in activity compared with June 2019 are mining (-9.3%), transport (-7.6%), admin and support services (-6.0%), and chemical manufacturing (-5.3%).

Changes in activity from March to June 2021

Selected GDP components, seasonally adjusted

...and our reaction

At 2.8%, the June quarter’s growth was roughly twice financial markets’ expectations and well in excess of the Reserve Bank’s pick of 0.7%. The result reiterates the demand pressures that were prevalent before the latest COVID-19 lockdown.
Given the effects of the pandemic and lockdowns on economic activity, some care needs to be taken with the quarterly figures because the usual historical patterns of GDP and its components has been disrupted. Stats NZ has made changes to its seasonal adjustment process to allow for these outliers, but there will still be volatility in the numbers.
The rebound in exports is a pleasing result after March quarter weakness. However, the closure of the Trans-Tasman bubble after three months means that the gains in services exports are likely to be reversed in the September quarter’s data.
The fall in household spending was a mix of some people taking their dollars to Australia, and the moderation of previous very strong results for spending on communication, recreation and culture, and restaurants and hotels. Nevertheless, household spending remains in good health, up 7.3% from June 2019.
We currently estimate that the August/September 2021 lockdown will knock 7.8% off GDP in the September quarter, subject to Auckland spending two weeks at Alert Level 3 from next week.
This result virtually guarantees a 25-point increase in the official cash rate at October’s review by the Reserve Bank. A 50-point raise remains possible before the end of this year, although increases in jobseeker numbers and the acute pressure on specific parts of the business community due to the extended Level 4 lockdown in Auckland are likely to dissuade the Bank from making such a large move next month.

Latest updates

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Gross domestic product

Robust economy gives COVID-19 a two-fingered salute

The key numbers...

Changes in activity from March to June 2021

...and our reaction

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