March 22, 2022

Weak rebound to September’s lockdown

Weaker result may be a result of ongoing COVID-19 restrictions in late 2021

New Zealand’s GDP in the fourth quarter of 2021 was 3.1 percent higher than the same period in 2020. This was lower than the 3.5 percent many forecasters predicted.

After GDP declined 3.6 percent in the September 2021 quarter, it was expected that the rebound in the December 2021 quarter would be similar. This was partly based on the rebound seen after other lockdowns in 2020. However unlike previous lockdowns, where restrictions were eased after the outbreak had been controlled, the Delta outbreak in August 2021 was unable to be controlled. This meant that even after Auckland’s lockdown was partly lifted in October 2021, the whole country was left in Alert Level 2, as Delta was present throughout most of the country. The traffic light system was introduced in December 2021, and then Omicron entered the country in January 2022.  

Professional services was the fastest growing industry for the December quarter

Breaking the quarterly total down by industry, professional services led the way with an increase in its production of 13.1 percent. Health care and social assistance (9.6 percent), wholesale trade (9.5 percent), and transport, postal and warehousing (6.8 percent) also grew strongly. But education and training output fell by 6.2 percent, and there were also declines in finance and insurance services (-3.2 percent) and agriculture (-2.0 percent).

To put the New Zealand performance into context, the country’s 2021q4 GDP growth rate was slightly slower than Australia’s (3.4 percent), but it was higher than the USA’s (1.7 percent). It was also considerably ahead of both the OECD (1.2 percent) and the EU (0.4 percent) averages. 

The latest annual GDP figure no longer includes any results from the heavily disrupted 2020 year

New Zealand’s annual GDP growth was very similar to the quarterly rate at 3.1 percent. Comparing 2021 to 2020, GDP was up by 5.6 percent. Given the large scale disruptions seen in 2020, this result is not surprising as there were few lockdowns until the Delta outbreak in the second half of 2021.

Wholesale trade was the fastest growing industry in 2021

Leading the way with a 10.4 percent increase in GDP across 2021, was wholesale trade. Retail trade (10.2 percent), construction (10.2 percent), and transport, postal and warehousing (9.5 percent) also grew strongly across 2021. At the other end, mining output fell by 3.7 percent across the year, and there were also falls for finance and insurance services (-2.5 percent), and education and training (-1.4 percent).

Will rising inflation rates and fuel prices derail growth in 2022?

Looking ahead, the main business surveys have been showing slowing activity levels. The February 2022 ANZ Business Outlook survey labelled the start to 2022 the “worst of both worlds”, with raising inflation, and business confidence dropping by 28 points. The survey also showed a drop of 14 points for businesses own activity.

Business New Zealand’s Performance of Services Index (PSI) also showed weakening activity indicators. Only the Performance of Manufacturing Index (PMI) showed positive signs, and these were minor.  

Overall, this does not bode well for a good start to 2022 GDP numbers. The annual GDP rate is likely to slow down in 2022, as current high fuel prices and inflation rates, and interest rate increases are likely to act as further handbrakes on the economy.