New Zealand's gross domestic product (GDP) slumped 1 percent in the December quarter, according to new figures from StatsNZ.
That's a bigger plunge than predicted. Banks had been divided over which way the GDP figures would go, with ANZ and KiwiBank picking a 0.5 percent gain in the three months to December 31 and BNZ expecting a 0.4 percent gain, while Westpac and ASB believed a slight drop was coming.
Quarterly, goods-producing industries fell by 3.2 percent, primary industries were down 0.6 percent, service industries rose 0.1 percent, GDP per capita fell 1.2 percent and real gross disposable national income per capita fell 1.1 percent.
Looking annually, GDP was down by 2.9 percent over the year to December 2020.
"Despite the relatively low levels of restriction on movement and business activity in the December 2020 quarter compared to the March, June and September 2020 quarters, COVID-19 restrictions are still having an impact on economic activity," StatsNZ says.
"The December 2020 quarter results reflect an easing of activity following a post-lockdown catch up in the previous quarter, and the continued absence of international visitors."
With the annual drop in GDP comparing well to that seen in other countries, Finance Minister Grant Robertson said New Zealand's economy remains among the best in the world.
"It is not surprising that these numbers are jumping around. The world is dealing with the ongoing impact of COVID-19 and there will be volatility for some time," Robertson said. "New Zealand had an extremely strong bounce-back in the September quarter and some of that has evened out in the December quarter."
ASB reacted to the figures by saying that the fall "raises questions around the true extent of NZ's economic performance through the pandemic".
"The absence of foreign tourists is having a greater negative impact on GDP than previously estimated, compounded by the possibility of capacity constraints holding back the stronger parts of the economy (i.e. construction). The implications are mixed, as some sectors are constrained by weak demand but others may be constrained by supply."
The decline in good-producing industries was driven by construction, which fell 8.7 percent, according to StatsNZ. Manufacturing dropped 0.7 percent, while the electricity, gas, water, and waste services was the only goods-producing industry to rise in the quarter, up 1.9 percent.
"The construction industry was the primary contributor to the decline in GDP, after record quarterly growth in the September 2020 quarter.
"On a sub-industry level, the fall was driven by construction services, heavy and civil construction and non-residential construction, while residential construction rose over the quarter. On an annual basis, construction was down 7.3 percent in the year ended December 2020."
Within the service industries, retail, accommodation, and restaurants declined 5 percent. However, this was balanced out by rises in both transport, postal, and warehousing, and business services, up 7 and 2 percent respectively.
"Within the primary industries, agriculture fell by 2.0 percent, while fishing and forestry rose by 3.1 and 1.7 percent respectively. Mining also rose slightly in the quarter, up 1.5 percent."
Household spending was up 1.1 percent in the December quarter, but down 1.7 percent over the last year.
Speaking to The AM Show earlier this week, Infometrics senior economist Brad Olsen said it was hard to pick.
"December, we're thinking things might have edged ahead just a slight touch, but we are expecting that not only December, but the 2021 year could be relatively volatile, a little bit up and down... basically the momentum is getting up there, but we're certainly not fully recovered and the car is still spluttering a little bit."
The COVID-19 pandemic meant last year had been a "topsy-turvy time for the economy", Olsen said.
In 2020's March quarter, GDP dropped 1.6 percent as industries like international travel and hospitality began to feel the brunt of the emerging health crisis. It then fell by a record 12.2 percent in the June quarter on the back of New Zealand's alert level 4 lockdown. With that, New Zealand had recorded two consecutive quarters where GDP fell, putting the country into a recession.
However, in the September quarter - which captured the economy bouncing back after the national lockdown but still impacted by Auckland's August restrictions - GDP rose a massive 14 percent, the strongest quarter growth on record.
In October, Infometrics forecast a double-dip recession in 2021, which is when a recession is followed by a brief recovery only to be followed by another recession. It expected that would be driven by the continued loss of international visitors to the country over summer.