New Zealand GDP Q4 2020

New Zealand

New Zealand: The economy swings back to contraction in Q4 as border closure hits tourism sector hard

March 18, 2021

GDP dropped 1.0% in seasonally-adjusted quarter-on-quarter terms in Q4 2020, as the important tourism sector was weighed down by border closures in the peak season. The result was significantly below market expectations of a 0.2% increase, strongly contrasted Q3’s record 13.9% jump and raised the prospect of a double-dip recession. Meanwhile, on an annual basis, GDP declined 0.9% in Q4, contrasting Q3’s 0.2% uptick. For the year as a whole, the economy shrank 3.0%, swinging from 2019’s 2.4% expansion.

The quarterly downturn came on the back of a marked deterioration in the external sector and a notable cooling in domestic demand, partly attributable to some pullback from Q3’s extremely strong rebound. Private consumption growth decelerated to 1.0% (Q3: +14.2% s.a. qoq), supported by healthy spending on services but constrained by falling spending on durable and non-durable goods. Moreover, fixed investment swung to contraction (Q4: -1.4% s.a. qoq; Q3: +27.5% s.a. qoq), rocked by falling investment in construction and plant, machinery and equipment. However, government spending growth gained pace (Q4: +1.7% s.a. qoq; Q3: +0.5% s.a. qoq).

The external sector, meanwhile, dragged on the economy, as imports continued to increase at a brisk pace while foreign sales fell. Exports declined 1.1% in Q4 (Q3: +4.7% s.a. qoq), weighed down by continued international travel bans, while imports expanded 9.1% in the quarter after jumping 10.9% in Q3, mainly due to higher demand for goods, primarily passenger motor cars.

Looking ahead, the economy is poised to rebound this year, following last year’s Covid-19-induced slump, supported by fiscal and monetary stimulus and the reopening of the global economy. That said, uncertainty over the distribution of vaccines and prolonged restrictions cloud the outlook.

FocusEconomics panelists project the economy to grow 4.5% in 2021, which is unchanged from last month’s estimate, and 3.2% in 2022.

Author: Massimo Bassetti, Senior Economist

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