Drop in GDP less than was feared
New Zealand’s GDP fell by 3.7 percent in the September quarter, but this was less than was originally predicted.
The fall followed growth of 2.4 percent in the June quarter, and 1.5 percent in the March quarter. Measured on an annual basis, GDP increased by 4.9 percent in the September quarter, compared to an increase of 5.3 percent in the June quarter and a decrease of 1.3 percent in the March quarter.
Until recently, many commentators were subscribing to the Reserve Banks initial prediction that the drop in the September quarter would be 5-7 percent. However, it became clear that many businesses had adapted well to operating under restrictions and, collectively, were able to maintain reasonable levels of production.
GDP fell most in the service sector, but the primary and goods producing sectors were also hit.
Most of the decrease in the latest quarter was attributable to the latest COVID lockdown restricting the operations of the service sector, particularly the private services, such as retail, bars and restaurants, and hotels and motels. However, GDP also decreased in the primary and goods-producing sectors.
The industry that experienced the greatest reduction was Retail trade and accommodation, with a $700 million decrease in its output. The industry that experienced the greatest lift was Public administration, safety and defence, with an increase of $51 million. Overall, twelve broad industry groups experienced a decrease, while only three experienced an increase.
The question is what will happen from now on.
But this is almost ancient history, given that the December quarter has been almost completed before the September quarter data was released. The question is what will happen from now on.
GDP in the December quarter is likely to rebound somewhat, when compared to the September quarter, but the rebound might not represent a full recovery to the level prior to the latest COVID lockdown. This is because roughly half of the September quarter was affected by COVID-related restrictions, while most of the December quarter will have been affected.
What we are likely to see is a continuation of the recent erratic pattern of quarter by quarter changes in GDP. However, the changes are unlikely to be as dramatic as we have seen since the start of 2020 – unless, of course, COVID surprises us again, in terms of its spread and severity.
We also have an updated official view of how GDP is likely to grow on an annual basis. The view is contained in the Treasury’s Half Year Economic and Fiscal Update (HYEFU), which was published the day before the latest GDP figures were released.
The Treasury’s assessment is that possible COVID developments represent a major source of uncertainty and risk. However, its view is that there will be a rebound in economic growth in the quarters following September 2021, supported by pent-up demand, continued strength in construction, and a more relaxed COVID protection framework. Accordingly, the Treasury expects annual growth in GDP to remain positive in the year to June 2022, at 0.8 percent. This compares to growth of 5.1 percent in the year to June 2021.
GDP growth in the year to June 2023 is projected to be 4.9 percent, although this assumes the downside risks to which the Treasury alluded do not eventuate.