Latest gross domestic product (GDP) data shows the economy had strong momentum in the period leading up to the recent Delta COVID-19 outbreak with a 2.8% rise in the June quarter.
Finance minister Grant Robertson says it’s a significantly better result than most forecasters had predicted and bodes well for a solid economic rebound.
It follows on from a 1.4% increase in the previous March quarter and bet Treasury’s May Budget forecast of a 0.8% rise. Economic commentators using more recent data had forecast around a 1.2% rise while internationally, the OECD average was 1.6%.
On an annual basis, the economy grew 5.1%. The size of the economy was $340 billion.
Compared with New Zealand’s 2.8% quarterly growth, Australia rose by 0.7%, the United States by 1.6% and Japan by 0.5%, while Canada declined by 0.3%. Only the United Kingdom grew by more, up 4.8%, reversing recent falls in activity.
Robertson says it’s “a very positive result and shows New Zealanders’ confidence in our economic recovery roadmap”.
“Excluding the September 2020 quarter, this is the strongest quarterly growth that we have seen since 1999. The economy in the June 2021 quarter was 4.3% above where it was in the pre-COVID December 2019 quarter.”
Household spending remained buoyant, led by retail spending on electronics and furniture, eating out and holidays.
The services industries, which make up two-thirds of the economy, grew strongly with higher activity in engineering, architectural and consulting services.
Activity in the construction sector continued to rise, driven by residential building, while there was solid growth in manufacturing. Businesses’ confidence in the economy was also reflected in investment levels, which remained high and above pre-COVID levels in the December 2019 quarter.
“This bodes well as we come out of lockdown. It shows our science and health-led plan has continued to work for the economy.
“Our quick and decisive response to this outbreak, including providing cashflow and confidence through schemes such as the Wage Subsidy, will also help the economy to rebound quickly again.
“We do know, however, that the impact has been uneven and we will continue to work with affected sectors to support them in these challenging times,” Robertson says.
COVID fund replenished
Ministers have decided to use the greater fiscal headroom to top up the COVID-19 Response and Recovery Fund (CRRF) by an extra $7 billion, Robertson says.
There is also an additional $3b available to spend from money previously allocated in the fund that has not been spent.
“The stronger economy has been reflected in the Government’s books, with lower deficits and debt position than had been predicted, and well below that of other nations that we compare ourselves against,” Robertson says.
“We have already boosted support to business in this lockdown and the extra funding will be targeted at further economic support as well as building resilience in our health system, supporting the vaccination rollout and border and MIQ provision.
“We are in a strong economic position to protect lives and livelihoods and plan for the gradual and careful opening up of New Zealand to the rest of the world to secure the recovery.
“Our focus remains on keeping New Zealanders safe, accelerating the recovery and dealing with long-standing issues such as climate change, housing and child wellbeing despite the uncertainty and volatility globally around the ongoing impact of COVID-19,” Robertson says.
GDP growth ‘impressive’
The Council of Trade Unions says the GDP data shows New Zealand is on the right path to economic recovery from COVID-19.
CTU economist and policy director Craig Renney says annual GDP growth of 5.1% is “impressive”.
“These figures would appear to support the Government’s decision to ‘go hard and go early’ on COVID-19 earlier in the year.
“Together with data on unemployment, this paints a picture of an economy doing much better than the Treasury had forecast at Budget 21 only months ago.
“The challenge will be to maintain that momentum when we come out of the current COVID-19 restrictions. We can demonstrate our economic strength by making make sure that we build back better for all New Zealanders.
“There were signs prior to this lockdown that growth was not being shared fairly with wages falling in real terms and the cost of living for the poorest rising much faster than for the rich.
“The government should be congratulated for the immediate handling of the COVID-19 response. The challenge is now to ensure that this translates into improvements in people’s lives in the long term,” Renney says.
“The GDP data also demonstrates the power of government support in the economy, and the vital role that it has had to play in delivering sustained economic growth.
“The decision to spend significant sums of money to support demand in the economy during the initial COVID-19 lockdown has been shown to be the right approach. It has saved jobs, companies, and households from the negative effects that COVID-19 has seen delivered in other countries.
“The government is therefore right to provide further support during the current lockdown, and it shows the value of government investment as we recover from this set of restrictions. On todays’ data the evidence is clear for a stronger role for the government in the economy into the future,” Renney says.
