June 21, 2020

GDP takes a tumble

Is COVID-19 solely to blame?

With one of the largest ever quarterly declines in the last thirty years, New Zealand’s economy shrinks for the first time in the last decade. Unfortunately for New Zealand, worse is to come in the June 2020 quarter, before growth resumes in the September 2020 quarter.

Overall GDP declined by 1.6 percent in the first quarter of 2020, as the first impacts of COVID-19 hit New Zealand. This is the largest quarterly decline since the March 1991 quarter when GDP declined by 2.4 percent. The decline in the quarter meant that the annual growth rate was down to 1.5 percent. The annual growth rate was at this level in the September 2011 quarter, at the tail end of the impact from the Global Financial Crisis. The annual growth rate for March 2020, was less than half of the 3.1 percent annual growth experienced just the year prior.

Statistics New Zealand

Overall, just eight of the 30 broad industries upon which Statistics New Zealand reports quarterly GDP figures, grew in the March 2020 quarter, while the remaining 22 industries saw a GDP decline.

The tables below show the six fastest and the six slowest growing industries in the March 2020 quarter, and it reveals a mixed bag of industries. Given the results, the question will always be how much of the downturn was due to the COVID-19 impact both in New Zealand and overseas, and how much was from the economic slowdown already occurring?

Both the fastest and slowest groups includes a mix of primary, production and service industries. In addition, the six fastest growing industries had GDP growth rates of greater than 0.3 percent for the quarter, despite the overall decline in economic activity, while the six slowest growing industries all experienced sharp decreases.

Fastest growing industries

Industry Annual growth rate (%)
Mining 4.4
Wood and paper products manufacturing 3.2
Information medical and telecommunications 1.4
Non-metallic mineral product manufacturing 1.1
Owner occupied property operation 0.4
Retail trade 0.4

Slowest growing industries

Industry Annual growth rate (%)
Textile, leather, clothing and footwear manufacturing -17.4
Accommodation and food services -7.8
Transport equipment, machinery and equipment manufacturing -5.9
Forestry and logging -5.4
Printing -5.3
Transport, postal and warehousing -5.2

While the lockdown in New Zealand only started on March 26, some industries were already experiencing negative impacts of COVID-19 before then. This was due to New Zealand already closing its borders to some travellers at the start of February. In addition, our largest export market China, started to lockdown a number of their cities, starting with Wuhan on 23 January. Consequently, GDP is expected to fall much more sharply in the June quarter.

Looking further ahead, it is widely expected that the economy will return to positive growth in the September quarter. By then, the full beneficial impacts of New Zealand being at alert level one and effectively free of COVID-19 will enable the economy to get moving upwards once more. The largest unknown quantity is whether and how export demand recovers when the peak of the pandemic has passed internationally.