June 17, 2021

Double dip recession avoided

Solid quarterly growth foreshadowed by business surveys

New Zealand’s GDP increased by 1.6 percent in the first quarter of 2021, compared to the fourth quarter of 2020. This surprised most forecasters, a few of whom had predicted a decrease.

However, it is difficult to understand the surprise. The main monthly business surveys (including the ANZ Business Outlook and Business New Zealand’s Performance of Manufacturing and Services Indexes) had indicated a fairly buoyant economy in February and March, following a relatively subdued January.

Construction was the fastest growing industry.

Breaking the total down by industry, Construction led the way with an increase in its production of 6.6 percent. Wholesale trade (4.0 percent), Information, media and telecoms (3.4 percent) and Health care and social assistance (2.8 percent) also grew strongly. But Mining output fell by 4.4 percent, and there were also falls in Transport, postal and warehousing (-4.1 percent) and Electricity, gas and water (-2.3 percent).

To put the New Zealand performance into context, the country’s 2021q1 GDP growth rate was slightly slower than Australia’s (1.8 percent), but it was the same as the USA’s. It was also considerably ahead of the OECD average (0.6 percent) and the EU average (-0.1 percent).

The latest annual GDP figure still includes the nightmare second quarter of 2020.

By contrast to the quarterly rate, New Zealand’s annual GDP growth was negative. Taking the latest four quarters compared to the previous four quarters, GDP was down by 2.3 percent. However, this was a bit of a freak number because the latest four quarters includes the nightmare second quarter of 2020, when GDP fell by 10.8 percent.

Looking ahead, the main business surveys have been showing good activity levels. This bodes well for a good second quarter of 2021 GDP number. The annual GDP rate is likely to show a spectacular increase, but this will be because the double digit decrease in the second of quarter of 2020 will become part of the previous four quarters, instead of the latest four quarters.