Westpac Institutional Bank Team
Westpac Institutional Bank
The New Zealand economy has entered a Covid-induced recession, but the official data so far captures only a fraction of the total impact. We expect more pain to come in terms of the hit to activity, employment and house prices. No part of the country will be spared from these impacts, though there are some differences across industries and regions that are worth highlighting.
New Zealand's GDP shrank by 1.6% in the March quarter, the biggest one-quarter drop in almost 30 years. The economy started the year in reasonable shape, but the Covid-19 pandemic rapidly escalated and in the last week of March the country entered a strict lockdown period. We've previously estimated that under lockdown the economy was running about a third below its potential, so even a single week of lockdown could have knocked about 2.5% off quarterly GDP.
The drop in March quarter GDP was large, but the June quarter result (due to be released on 17 September) will be off the scale. The country remained in a strict lockdown through to the end of April, with a steady easing of domestic restrictions since then. While daily and weekly data show that activity has bounced back strongly as the restrictions have been lifted, the length and severity of the lockdown make it almost inevitable that the drop in June quarter GDP will be in the double digits.
At this early stage there's a wide range of forecasts around the market. Our current forecast of a 13.5% decline is one of the milder estimates. In contrast, last month both the RBNZ and the Treasury estimated the Q2 decline at more than 20%, although stronger recent data makes it likely that those forecasts have been upgraded since then.
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