New Zealand: Economy rebounds strongly in Q1 amid booming housing market and low interest rates
June 18, 2021
GDP expanded 1.6% in seasonally-adjusted quarter-on-quarter terms in Q1, as growth in domestic demand surged amid a booming housing market and favorable financing conditions. The result was significantly above market expectations of a 0.5% increase and contrasted Q4 2020’s 1.0% downturn. Meanwhile, on an annual basis, GDP rose 2.4% in Q1, contrasting Q4 2020’s 0.8% drop.
The quarterly turnaround came on the back of a marked improvement in consumer spending and despite a notable deterioration in external demand. Private consumption growth accelerated to 5.4% (Q4 2020: +1.1% s.a. qoq), supported by healthy spending on accommodation, eating out and big-ticket items. Moreover, fixed investment rebounded (Q1: +6.4% s.a. qoq; Q4 2020: -0.7% s.a. qoq), buoyed by soaring investment in construction, plant and machinery and transport equipment. However, government spending growth lost pace (Q1: +1.6% s.a. qoq; Q4 2020: +2.5% s.a. qoq).
Meanwhile, the external sector dragged on the economy, as imports continued to increase at a brisk pace while foreign sales tumbled. Exports fell 8.0% in Q1 (Q4 2020: -0.9% s.a. qoq), weighed down by continued international travel bans, while imports expanded 7.1% in the quarter after jumping 9.7% in Q4 2020, mainly due to higher demand for investment goods.
The economy should rebound this year, following 2020’s pandemic-induced slump. Capital and consumer spending are set to increase amid unleashed pent-up demand and expansionary fiscal and monetary policy stances, while recovering global demand should support commodity exports. That said, pandemic-related uncertainty and a potentially overheating housing market pose downside risks.