New Zealand’s economic growth for the fourth quarter contracted 1% – a worse outcome than the flat result that was forecast by the country’s central bank and many in the markets.
The drop in GDP followed a record 13.9% bounce in the September quarter.
Statistics NZ said the contraction was mainly driven by a drop in activity in the commercial construction and the retail and accommodation industries after strong rebound in these sectors in the September 2020 quarter.
The report showed dwelling constriction activity grew but the increase in home building was not enough to offset a drop in the commercial construction sector
For 2020, GDP contracted 2.9% on an annual basis. That was the largest ever annual fall in economic growth recorded for NZ.
It came despite fewer restrictions on domestic travel and business activity in the December quarter compared to previous quarters.
The drop in annual GDP was largely due to the effects of the alert level 4 national lockdown earlier in 2020.
New Zealand’s December quarter performance was very different to the 3.1% rise reported for Australia and worse than the annual contraction here of 1.1%.
The Kiwi outcome though was better than the 3.5% fall in the US economy for 2020 and a massive 9.9% crunch for Britain.
The decline in economic activity was worse than predicted by any of the five major banks, with some forecasting a modest lift of between 0.1% and 0.5% for the quarter.
Economists said the surprise contraction will end talk of an early rate rise from the Reserve bank of NZ. Those calls came from headline hunters among analysts and were oblivious to what was happening in the Kiwi economy.
In fact some economists record GDP will turn out negative for this quarter, pushing the Kiwi economy into a technical recession, especially with the absence of international tourists and overseas students. The America’s Cup should replace some of the income lost to the drop in international visitors.
The two largest positive contributors in the quarter were transport, postal and warehousing, and business services.
However Statistics NZ says both industries are still operating below pre-COVID levels and are weaker over the calendar year 2020 compared to 2019. Transport services, in particular, have been impacted by the lack of international travel, with most of Air New Zealand’s international routes still closed.
