The slow easing of Covid restrictions freed up the New Zealand economy in the three months to June and helped GDP to rebound 1.7% after the 0.2% contraction in the March quarter.
Data from Statistics NZ on Thursday revealed the recovery was driven by the country’s service sector (coffee shops, pubs, clubs, cafes, eateries, wineries, tourism) which expanded as the Covid restrictions came off – they were finally relaxed once and for all earlier this month.
The June quarter’s rise meant New Zealand avoided a technical recession of two consecutive quarters of negative GDP growth. The 1.7% growth was sharply higher than forecasts around 1%, but slower than the 3% rise in the December quarter, which in turn was much stronger than the 3.9% slide in the three months to September when the Covid restrictions closed down the economy.
But it won’t make the Reserve Bank of NZ any happier with its relentless campaign to control inflation by lifting the official cash rate (OCR) now at 3.0% and tipped to rise by another 0.50% at the October 5 meeting, although the central bank might be happy with weak levels of household consumption.
NZ growth in the quarter was much stronger than Australia’s 0.9% but our annual growth of 3.9% was significantly stronger than New Zealand’s weak 0.4%.
That was due to the lack of energy commodities in NZ but readily available in Australia with coal, LNG and other key commodities (wheat and metals) solid at near record world prices in some cases.
NZ inflation was running at 7.3% in the June quarter, up from 6.9% in the three months to March and higher than Australia’s 6.1%.
The GDP figures saw economists at the ASB lift their estimates of the peak level for the OCR to 4.25% with a rise of 0.25% in February next year capping two more increases of 0.50% this year.
Statistics NZ’s Ruvani Ratnayake said in a statement the rebound in growth followed the move to ease Covid restrictions from red to orange in mid-April.
“The reopening of borders, easing of both domestic and international travel restrictions, and fewer domestic restrictions under the orange traffic light setting supported growth in industries that had been most affected by the Covid-19 response measures,” Ratnayake said.
“In the June 2022 quarter, households and international visitors spent more on transport, accommodation, eating out, and sports and recreational activities.”
Services grew 2.7% in the quarter but the hangover of the restrictions saw household spending fall sharply, again.
Household spending fell 3.2%, thanks to lower spending on goods such as used motor vehicles and audio-visual equipment, with a similar fall seen in retail sales.
Moody’s Analytics said the RBNZ would welcome the fall in household consumption during the quarter.
