WELLINGTON (BLOOMBERG) - New Zealand entered recession for the first time in almost a decade as the coronavirus pandemic led to the nation's biggest quarterly contraction in 29 years.
Gross domestic product fell 1.6 per cent in the first quarter from the fourth, Statistics New Zealand said on Thursday (June 18) in Wellington. That's the largest decline since 1991 and more than the 1 per cent expected by economists. From a year earlier, the economy shrank 0.2 per cent - the first annual contraction since 2009.
New Zealand is bracing for a severe contraction in the three months through June after it responded to the pandemic by closing its border and imposing a strict nationwide lockdown that stayed in place until mid-May. The government has pledged NZ$62 billion (S$55.7 billion) of fiscal support to help revive domestic demand and protect jobs, while the central bank has slashed interest rates and embarked on quantitative easing to drive down borrowing costs.
"We are expecting the bulk of the economic impact to hit in the second quarter," said Jane Turner, senior economist at ASB Bank in Auckland, who tips a 17 per cent contraction.
"The labour market is set to deteriorate markedly with unemployment set to rise above 8 per cent. The weaker labour market and job security concerns will likely result in many households becoming more cautious about spending over the coming year."
The New Zealand dollar was little changed after the GDP report. It bought 64.50 US cents at 11.24am in Wellington.
The initial impact of the Covid-19 outbreak began in early February with a travel ban imposed on arrivals from China and exporters facing difficulties in their supply chains. Tourism started to experience the pain as border measures were stepped up after the first case of Covid-19 was discovered on Feb 28. Prime Minister Jacinda Ardern eventually took the unprecedented step of closing the border to all foreigners on March 19.
Only in the final week of the quarter, on March 25, was the nation placed into lockdown, requiring almost all retailers other than supermarkets to close and shutting down building sites and most factories.
Bank economists predict the economy will contract by as much as 19 per cent in the second quarter, confirming New Zealand's first recession since the second half of 2010. Some have scaled back the severity of the expected slump after the country succeeded in eliminating the virus and came out of lockdown earlier than anticipated, partially reviving consumer confidence and giving a fillip to retail spending.
The first-quarter contraction was driven by service industries, particularly hospitality as international travel stopped, the statistics agency said.