'Phenomenal': ASB predicts GDP to shrink just 3 percent, 'far better than previously expected'

New Zealand's economic performance this year has been "phenomenal", all things considered, according to ASB's chief economist.

The bank on Wednesday released its latest Quarterly Economic Forecast, in which it predicts a 3 percent decline in GDP for 2020 - "significantly better outlook than the 6 or 7 percent  predicted in March."

New Zealand's first case of COVID-19 was confirmed at the end of February, and four weeks later the country was in lockdown.

"In the first six months of the year, New Zealand's economy contracted 13.4 percent as a result of the strict four-week lockdown, however, a smoother-than-expected exit from lockdown and return to normality has seen Kiwis reaching for their wallets," ASB said in a statement. 

"Given the events of 2020 and the impact of COVID, to finish the year down only 3 percent from 2019 is phenomenal," said the bank's chief economist Nick Tuffley.

"With house price expectations at a record high and the labour market performing better than expected, our forecasts are certainly looking a lot rosier than we could have predicted in the first half of this year."

Tuffley said globally New Zealand is "faring better in 2020 than many developed countries, with estimated annual declines of 7 percent in the EU and 11 percent in the UK". Europe was an early epicentre of the pandemic, and has recently been hit by a second wave with similarly terrible results. 

Since the level 4 lockdown in March and April, New Zealand has avoided widespread outbreaks - a small one briefly put Auckland into a less restrictive level 3 lockdown in August, but the rest of the country was largely unaffected. Spending in most retail sectors was back to pre-COVID levels by October, ASB's report says, and significantly up in several areas.

"Fear of losing jobs has quickly given way to fear of missing out on a bargain or some fun, and the sheer degree of support the economy has received means the country has fared far better than previously expected," said Tuffley, noting the tourism sector - even with assistance from Kiwis unable or unwilling to travel overseas - is where most of the pain is being felt.

In May, Treasury forecast unemployment rising to 9.8 percent by September - it's only reached 5.3 percent so far, with the Government spending billions on subsidies to keep people in work. 

"It is almost impossible at the moment to forecast with accuracy," Finance Minister Grant Robertson said at the time, sceptical of the prediction.

Helping the economy is a resurgent China, where the virus was first found, which like New Zealand stamped out local transmission.

"China's rebound has been particularly good for our key commodity and food exports, which have held up well," said Tuffley.

"For the 12 months ending September, exports of dairy, meat, fruit and wine were all well above  the previous year, which has helped offset the 43 percent decline in the export of services, in particular international tourism."

Nick Tuffley of ASB.
Nick Tuffley of ASB. Photo credit: The AM Show

A rebound into positive GDP growth isn't expected until 2022 however, after vaccines are rolled out, thanks to our tough border stance and the global situation - where the pandemic right now is actually worse than it's ever been, in terms of infections and deaths. 

On Tuesday, independent economist Cameron Bagrie rated the Government's handling of the pandemic an "eight or nine" out of 10.

"The border control has still been a bit loose - we've had a couple of incursions and personally I think we've been actually pretty lucky. But compared to what we've seen around the globe, we're in a hellishly good state."