Economic activity rebounds in the June quarter

Statistics New Zealand’s latest release of New Zealand’s gross domestic product (GDP) shows a surprisingly strong bounce back of 1.7 percent in the June 2022 quarter. The easing of COVID-19 related restrictions throughout the quarter provided an overdue boost to our economy, as we progressively return to full capacity. 

A rebound in services and exports has provided for a strong bounce back in economic activity. This means that we have successfully avoided two consecutive periods of economic decline, or a technical recession. 

The service industries, which represent around two-thirds of GDP (production), were up by 2.7 percent in the June 2022 quarter. This partially offset the 3.8 percent fall in the goods-producing industries. The primary industries registered barely any growth (0.2 percent) during the quarter.

Following three consecutive quarters of economic decline, our transport, postal, and warehousing industry gained some much-needed traction, bouncing back by 19.7 percent. The easing of travel restrictions throughout the quarter prompted improved demand for air transport, and transport support services. 

Hospitality-related industries and sports and recreational activities also picked up with the shift in the COVID-19 traffic light settings (from red to orange) early in the June quarter. The outlook for our tourism and related industries is looking more positive especially with the recent removal of COVID-19 vaccination proof for incoming travellers, and the end of New Zealand’s COVID-19 Protection Framework on 13 September. This offers a bright spot in the outlook as summer approaches.

Looking at the performance of GDP by the expenditure measure, exports performed strongly over the quarter. Exports were up by 20.5 percent during this period, driven by a slight increase in the exports of goods and particularly, a large increase in service exports. 

Travel and transport services provided for a 60.7 percent quarterly increase in the exports of services. Agriculture also had a strong rebound, with agriculture and fishing primary products (up 16.9 percent), and forestry primary products (up 18.6 percent) contributing to a 3.8 percent increase in the exports of goods in the June 2022 quarter.

However, households continue to grapple with rising prices, and have reduced spending as high inflationary expectations and low confidence persists. Household consumption expenditure declined 3.2 percent, with households spending much less on non-durable and durable goods, spending on these fell by 2.3 percent and 8.6 percent, respectively. 

The ongoing war in Ukraine continues to cause international disruptions and uneasiness in the global markets. This is further pronounced by inflationary pressures, and rising interest rates, leaving household budgets stretched. Even with most economies relaxing restrictions and prevention measures, COVID-19 still presents obstacles, particularly in China. New Zealand’s GDP growth in the June quarter was the strongest out of the international economies we tend to compare ourselves to. Additionally, it was comfortably above the OECD average of 0.3 percent. 

Recording three consecutive quarters of economic growth, Australia’s economy was strongly supported by the re-opening of domestic and international borders in the June quarter – the first full quarter without travel restrictions. 

Coming into effect in September, further easing of border restrictions, and the abandonment of our COVID-19 Protection Framework will work to aid further economic growth in coming quarters. At the same time, the Government is trying to keep inflation in check by tightening monetary policy and increasing interest rates. Tighter monetary policy will weigh on consumption and investment spending. Globally, as well as domestically, confidence is lacking, and a significant amount of uncertainty remains with respect to the outlook for inflation and the expected pace of economic moderation.

You can find the latest BERL economic forecasts in the Winter 2022 edition of the Birds Eye View.