New Zealand has recorded its largest ever annual fall in gross domestic product (GDP) with Stats NZ figures down 2.9% over the year to December 2020, although the quarter result shows the transport sector remains a bright spot.
For the December 2020 quarter, GDP fell by 1% following a revised 13.9% increase in the September 2020 quarter.
At the industry level, seven out of 16 industries declined for the quarter. The two largest contributors to the drop were construction, and retail trade and accommodation. Both industries saw strong September 2020 quarter results.
The two largest positive contributors in the quarter were transport, postal and warehousing (up $136m) and business services (up $135m).
However, both industries are still operating below pre-COVID levels and are weaker over the calendar year 2020 compared to 2019. Transport services, in particular, have been impacted by the lack of international travel.
The December 2020 quarter results capture the beginning of what is traditionally the international tourism season, which has tended to peak during the summer months.
“The dip in activity in the December quarter follows record growth in the September 2020 quarter,” national accounts senior manager Paul Pascoe says.
“The September quarter reflected a bounce back after a slump in the June quarter, due to the COVID-19 national lockdown when many businesses were shut for weeks.
“Activity in the December quarter shows a mixed picture – some industries are down, but others have held up or risen, despite the ongoing impact of COVID,” he says.
“Falls in construction services, commercial building, and infrastructure were partially offset by continued growth in residential building activity. Construction activity remains at historically high levels, despite this quarter’s fall,” Pascoe says.
On the other hand, parts of the retail trade and accommodation industry continue to be affected by the absence of international tourism.
“Businesses ranging from hotels and motels, to restaurants, cafes and bars faced much lower activity in calendar year 2020 than in 2019, with far fewer international tourists in the country because of border restrictions,” he says.
Annual GDP down 2.9% in 2020
The GDP decline of 2.9% over the year to December 2020 is largely due to the effects of the alert level 4 national lockdown earlier in 2020.
Globally, there have been a variety of experiences and responses to the pandemic, and these need to be taken into consideration when comparing the recent GDP results for different countries, Pascoe says.
“Activity in New Zealand in the December 2020 quarter was down almost 1% compared with the same quarter in 2019, pre-COVID.
“This dip is similar to Australia, but much less of a fall than seen in the European Union or the United Kingdom,” he says.
Differences in GDP growth rates also reflect structural differences in each country’s economy. This includes the relative importance of industries that have been impacted by COVID-19 restrictions.
‘A big wake up call’
Finance minister Grant Robertson says it’s “not surprising that these numbers are jumping around”.
“The world is dealing with the ongoing impact of COVID-19 and there will be volatility for some time.
“There is also a lot of volatility within sectors in the economy. For example, on these measures construction declined in the quarter but activity remains at historically high levels,” he says.
The figures show that the overall all size of the economy was $322 billion in 2020. Robertson says this compares favourably with December’s Half Year Economic and Fiscal Update forecast of $307b.
“Our economy remains strong. We will stick to our plan that has successfully helped New Zealand through this pandemic, keeping New Zealanders safe, accelerating the recovery and dealing with complex and long-standing issues such as climate change, housing affordability and child poverty. We will keep working with sectors who are still facing the impacts of COVID to support them to recover and rebuild,” Robertson says.
National Party shadow treasurer Andrew Bayly says the GDP result is disappointing because it appears the biggest contributor is the decline in the infrastructure sector.
Construction activity has fallen by almost 10% in the September to December period, normally the busiest time for our infrastructure sector, he says.
“The principal reason appears to be a lack of infrastructure investment that occurred during this time.
“But this was why the Government originally announced its shovel-ready projects, the whole point of the programme was speed. They were meant to give our economy a boost and offset job losses.
“Instead the Government has shown an inability to deliver with construction only started on 49 of the 205 shovel-ready projects that were due to start within 12 months of the announcement,” Bayly says.
“This is an area finance minister Grant Robertson can’t blame on the Reserve Bank, he should have his foot on the gas and be making sure his Government delivers on its infrastructure promises.
“The fact the New Zealand economy is now shrinking again should be a big wake up call to the finance minister.
“Announcements won’t fix our economy, shovels in the ground will,” Bayly says.
‘Weaker than expected’
ASB described the 1% quarter drop as “much weaker than expected” compared to the bank’s negative 0.1% forecast.
Market median expectations were for a 0.1% increase while the Reserve Bank of New Zealand (RBNZ) February Monetary Policy Statement (MPS) forecast zero growth.
“The size of the Q4 fall raises questions around the true extent of NZ’s economic performance through the pandemic, but also raises questions over how strong H1 2021 growth will be,” ASB says.
“The absence of foreign tourists had a greater negative impact on Q4 GDP than previously estimated. This was compounded by the possibility of capacity constraints holding back the stronger parts of the economy, particularly in the construction sector. The implications are mixed, as some sectors are constrained by weak demand but others may be constrained by supply.
“NZ’s GDP growth over 2021 is likely to remain muted, largely due to the impact of closed borders on the economy via tourism and population growth. However, prospects for 2022 have improved in large part due to the early signs of success in global vaccinations to date and clarity around NZ’s own vaccination timetable. From this point on, businesses should become more confident on the outlook and look to take action on employment and investment plans over the coming year,” ASB says.
