New Zealand: Economy contracts at sharpest pace in nearly 30 years on initial lockdown effects
June 18, 2020
The economy plunged 1.6% in quarter-on-quarter seasonally-adjusted terms in the first quarter of 2020, contrasting Q4’s 0.5% increase. The reading represented the most pronounced contraction since Q1 1991 and was below expectations of a 1.0% drop. Meanwhile, on a year-on-year basis, the economy dipped 0.2% in Q1, swinging from Q4’s 1.8% expansion, marking the first contraction in over 10 years.
The notable contraction was due to the tough containment measures deployed at the tail end of the first quarter. The sour quarter-on quarter reading in Q1 came on the back of a downturn in domestic demand. Household spending declined 0.3% (Q4: +0.3% qoq s.a.), as a plunge in consumer confidence in March, lockdowns and downbeat economic prospects prompted households to postpone spending and increase precautionary savings. The drop in consumer spending on long-lasting products, accommodation and air passenger was particularly sharp. Moreover, fixed investment slumped 3.0% (Q4: -0.2% qoq s.a.), dragged down by falling investment in transport equipment, residential and non-residential building due to business shutdowns. Meanwhile, public spending flatlined in Q1 (Q4: +1.8% qoq s.a.).
In contrast, the external sector strengthened albeit on the back of tumbling imports. Exports of goods and services fell 2.1%, swinging from the 0.7% increase in Q4, due to plummeting sales of travel services and despite rising exports of dairy products. On the other hand, imports of goods and services dived 5.6% after growing 0.4% in Q4, hammered by vanishing investment activity and slumping purchases of consumer durable goods.
Both domestic and external demand set to take a severe hit this year. Supportive fiscal and monetary policy stances and the relatively fast lifting of lockdown measures will help the economy to start its recovery in H2, although possible flare-ups of the pandemic globally pose downside risks.