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.