New Zealand: GDP contracted to multi-decade levels - UOB

FXStreet reports that economist Lee Sue Ann at UOB Group assessed the recently published GDP figures for the first quarter in New Zealand.

“New Zealand’s GDP fell by 1.6% q/q in the first three months of the year, way below expectations for a -1.0% q/q print, and the +0.5% q/q reading in 4Q19. This was the first contraction in growth since late 2010 and the biggest single quarterly fall since 1991. From a year earlier, the economy shrank 0.2% y/y, the first annual contraction since 2009. The first quarter contraction was driven by service industries, particularly hospitality (-7.8% q/q) as international travel stopped. There were also falls in the construction (-4.1% q/q) and transport, postal, and warehousing industries (-5.2% q/q). Household consumption expenditure also fell (-0.3% q/q).”

“New Zealand responded proactively to the spread of the COVID-19 pandemic, by closing its border and implementing a stricter nationwide lockdown that stayed in place until mid-May. The country started to experience the economic impact as border measures were stepped up following the first case on 28 February. PM Jacinda Ardern eventually took the unprecedented step of closing the borders to all foreigners on 19 March. Then, in the final week of the quarter on 25 March, the nation was placed into lockdown, requiring almost all retailers other than supermarkets to close and shutting down building sites and most factories.”

“As such, we are expecting the bulk of the economic impact to hit in the second quarter. We are likely to see a much more significant fall in household consumption amid the surge in unemployment, following the scaling back and subsequent termination of the wage subsidy scheme, together with a large reduction in net inward migration and a loss in housing wealth. Business investment will remain subdued, reflecting weak business confidence and low capacity utilization. We see a record slump in 2Q20 to -16.6% y/y, followed by contractions of -6.1% y/y in 3Q20 and -3.5% y/y in 4Q20. This brings our full-year 2020 GDP forecast at -6.6%, compared to -1.0% previously projected in our March quarterly update.”