Covid 19 coronavirus: Liam Dann’s GDP preview – Making sense of New Zealand’s big rebound

Brace yourself for details of the biggest quarterly economic rebound in New Zealand history.

This Thursday’s third quarter GDP will be “a doozy,” says ANZ senior economist Miles Workman.

ANZ is expecting a 14 per cent quarter on quarter rebound – others such as ASB and Westpac economists see it coming in at 13 per cent.

That follows the big 12.2 per cent slump in the lockdown-affected second quarter of the year.

“Boing!” Should sum up [the third quarter] pretty well, says Workman.

That won’t quite take GDP back to its pre-crisis level at the end of last year, but it will bejust one or two per cent short of that level.

“That’s pretty impressive given the border remains closed, the global economy is facing significant virus-induced headwinds, and parts of the country were under either alert level 3 or alert level 2 at some point during the quarter,” Workman says.

Basically, the New Zealand economy has been more resilient and has recovered from lockdown much faster than expected earlier this year, says ASB senior economist Jane Turner.

“The key question going forward is whether momentum can be sustained?We expect growth will be modest over 2021, given a number of headwinds, including the international border restrictions and higher unemployment,” she says.

“But there are also a number of tailwinds, including a strong (goods) export sector, low interest rates and strong housing demand.”

In terms of where the economy might have been, in the absence of Covid, that puts us about 4-5 per cent behind, says Westpac senior economist Michael Gordon.

“That’s about the size of the hole left by the loss of international travel while the country’s borders remain closed,” he says. “

“In other words, the rest of the domestic economy is already operating at something close to full speed.”

But the experience has varied greatly across sectors, he says.

Some areas such as forestry, construction and professional services were now back at pre-Covid levels or even higher.

Some sectors like agriculture, food manufacturing and finance were deemed essential during the lockdown, and had been able to keep operating more or less as normal through this year.

The worst-performing sectors were those affected by the closure of the international border, Gordon says.

That includes transport (especially air travel), hospitality, and administrative services (a category that includes travel agencies).

“Meanwhile, some parts of the economy are running red-hot – particularly retail, which we estimate is about 9 per cent up on its pre-Covid level,” Gordon says.

“Some of this will be due to substitution. The closure of the border has also halted outbound tourism, so it appears that Kiwis are spending up in areas such as homewares and renovations instead.”

The key question was whether the strong momentum in the quarter could be can be sustained?says ASB’s Turner.

“We expect growth will be modest over 2021, given a number of headwinds, including the international border restrictions and higher unemployment,” she says.

“But there are also a number of tailwinds, including a strong (goods) export sector, low interest rates and strong housing demand.”

Meanwhile, it is important to recognise the data “will be noisy”, says ANZ’s Workman.

“It needs to be borne in mind that all else equal, an “overshoot” in [third quarter] growth relative to our expectation will make low or even negative growth [in the fourth quarter] more likely.”

“Nonetheless, we tip our hats to the resilience of the NZ economy, the success of virus containment, and the efficacy of the macroeconomic-policy response,” Workman says.

“The economy has proven more robust than we initially thought (thanks in particular to the housing-induced bump to domestic demand and the generosity of the wage subsidy).

“It’s truly fantastic stuff, but unfortunately that doesn’t fully mitigate the significant challenges that lie ahead.”

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