March 19, 2021

GDP in decline once more

A September party hangover or a more serious decline?

Statistics New Zealand has announced that New Zealand has experienced its third single quarter decline in GDP, in 2020, with a one percent fall for the December 2020 quarter. The previous two falls were an 11 percent decline in the June 2020 quarter, and a 1.2 percent decline in the March 2020 quarter. In between all of these three falls in GDP, we saw the highest ever quarterly increase in GDP of 13.9 percent, as shown in the figure below.

Given the lack of lockdowns during the December 2020 quarter, the latest data can be viewed two ways. The first, that the previous September 2020 quarter saw a very high bounce back from the level four lockdowns in April and May 2020, as people celebrated their freedom through very high spending and activity which could not be sustained through the December quarter. This meant that we were due either a small increase or loss in GDP in the December quarter as activity in the country settled. The second is that without continued strong fiscal stimulus from the Government (with the wage subsidy ending in September), we are starting to see the impact of limited open borders, a lack of international tourists, and business closures on our GDP, which could see New Zealand officially back in a recession once the March 2021 GDP are revealed.

Examining broad industry performance in the December 2020 quarter reveals that the six industries seeing the largest declines for the quarter were, as expected, the retail trade, and accommodation and food services industries, hit by the lack of international tourism. Next on the list are the textile, furniture, and non-metallic mineral product manufacturing industries (all of which are small components of New Zealand’s overall manufacturing). The last industry on the list is the surprise industry of the five, the construction industry. This is a surprise because of the expectation that this industry has strong demands for residential builds as well as infrastructure projects, though I do wonder if the industry rushed in the September quarter and worked overtime to catch up with projects delayed due to the early lockdowns, and this decline is the result of the industry coming back to a more normal state of affairs.

At the other end of the spectrum the six fastest growing industries were other services (personal and repair services), transport, printing, transport equipment, machinery and equipment manufacturing, administrative and support services, and wood and paper products manufacturing. Given the broad mix of services, logistics and manufacturing industries covered it is hard to pinpoint why these industries have continued to grow, apart from many of these industries only saw a partial rebound in the September 2020 quarter, and that the increases in the December quarter have seen these industries continue to move back to 2019 levels of activity.

On an annual basis, New Zealand saw a three percent decline for the year to December 2020. On this annual basis New Zealand saw strong declines for the transport, postal and warehousing; textile manufacturing; administration and support services; printing; and the accommodation and food services industries. All of these industries are down over 13 percent compared to December 2019. On a more positive note, the central government; local government; retail trade; health care and social assistance; and rental, hiring and real estate services all saw an annual increase of at least 1.6 percent compared to December 2019.