'In the eye of the storm': Quarterly GDP falls a record 12.2 percent, New Zealand officially in recession

New Zealand Gross Domestic Product (GDP) fell by a record 12.2 percent in the June 2020 quarter compared to the March quarter, in what is the largest fall since official records began.

In an announcement on Thursday, Statistics New Zealand confirmed that GDP was negative for a second consecutive quarter. Between the March 2020 and the June 2020 quarters, it fell by 12.2 percent, from -1.6 percent in March. The annual percentage change was -2 percent. 

The result indicates the size of the economy has shrunk considerably and New Zealand is officially now in recession.

An official measure of economic activity, GDP provides a snapshot of the value added to the economy over a quarterly or annual period. It represents all finished goods and services made in New Zealand, including net exports (exports minus imports). 

Statistics New Zealand national accounts senior manager Paul Pascoe says the 12.2 percent fall in quarterly GDP is by far the largest on record in New Zealand. 

“It’s a little hard to make direct long term comparisions because of the way statistics change over time. It’s much larger than anything we saw in the Global Financial Crisis," he said.

He said technically New Zealand is now in a recession.

“This is a very sharp, very broad shock to economy. Obviously we start the September quarter in a very different situation."

Throughout the quarter, borders were closed to incoming travellers. Industries such as retail, accommodation, restaurants and transport were significantly impacted.  For essential services, such as food and beverage manufacturers, falls were less. 

COVID-19 alert level 4 restrictions saw the majority of construction activity, and some manufacturing sub-industries, come to a halt.  Construction fell by 25.8 percent and manufacturing by 13 percent. Household spending fell by 12.1 percent, including travel, restaurant and takeaway services.

To put the record fall in perspective, steps taken to contain COVID-19 across the world had also led to historically large drops.  

"New Zealand's result compares to falls of 7.0 percent in Australia, 11.5 percent in Canada, 7.9 percent in Japan, 20.4 percent in the United Kingdom, and 9.1 percent in the United States," Pascoe said.

June 2020 quarter GDP reflects economic activity through all four COVID-19 alert levels. It includes 27 days in COVID-19 alert level 4 lockdown, which saw all non-essential businesses close.

Prior to the announcement, leading economists picked a -12 percent to -13.5 percent change in GDP for the June quarter.  

"Regards the recession, we're in the eye of the storm,"  ANZ chief economist Sharon Zollner said.

But although the outbreak is expected to weigh on economic activity until halfway through 2022, economists say GDP has reached its lowest point this cycle.

"A third of economic activity simply wasn’t possible for a time: quarter two GDP should certainly mark the bottom," Zollner added.

Economist Cameron Bagrie said he expects an improvement in the September quarter. But the economy is moving in fits and starts.  

"The September quarter is going to show a pretty big bounce, but it's going to take a long time to get that level," he said.

The pre-election and fiscal update (PREFU) released by Treasury on Wednesday forecast a 16 percent contraction in GDP for the June 2020 quarter - a result that would "far exceed previous records."

It forecast net core Crown debt to reach $201 billion by 2024, which as a share of GDP is 55.3 percent. Unemployment would peak at 7.8 percent in the March 2022 quarter, it said.

Based on Statistics New Zealand GDP measures applied from 1987, the largest quarterly drop was in March 1991, when GDP fell 2.4 percent.  Earlier figures using different methods showed a larger fall of 4.4 percent in the December 1977 quarter.  

Statistics New Zealand says as COVID-19 is unprecedented, the GDP results may be revised as more information comes to hand.