New Zealand’s third-quarter GDP surge puts us on top of the world, relative to our international peers.
At 14 per cent, the dramatic rebound was driven by a combination of government and Reserve Bank stimulus, strong export returns – and by Kiwis drinking, eating and holidaying like the nation depended on it.
That drove an extraordinary result which has left our GDP up 0.4 per cent year on year – almost exactly in line with pre-virus levels, said Ben Udy, at Sydney-based Capital Economics.
By that year-on-year measure, our economic performance is currently near best in the world – ahead of Australia (down 3.8 per cent), the UK (down 9.6 per cent), US (down 2.9) and the OECD average (down 3.9).
One of the magic ingredients appears to be the success of this country’s Covid-19 elimination strategy, which allowed New Zealanders to unleash much of the pent-up demand in the economy after the big second-quarter slump.
Having provided the conditions to do so, both Finance Minister Grant Robertson and Reserve Bank Governor Adrian Orr called on Kiwis to do their bit by getting out and spending.
We rose to the challenge, heroically.
Expenditure GDP for the quarter ran ahead of the topline figure at 15.6 per cent.
That was driven by a 14.8 per cent bounce in consumption and a 27.7 per cent rise in investment.
Despite the obvious hit it took from the lack of international tourists the services sector – which accounts for the bulk of GDP – it still rose 11 per cent.
Within that,retail, accommodation and restaurant spending rose 42.8 per cent.
Economists have been quick to warn that the Covid-19 pandemic is not done yet.
That means this rollercoaster ride of historically abnormal GDP shifts isn’t over either.
The coming quarters will be tough and the economy will feel the impact of closed borders much more acutely with no international tourists through the traditional high season.
The pent-up demand that saw strong spending on home appliances and home improvements may also start to fade.
“These data are still very noisy, and while we’ll likely lift our expectation for the level of GDP over the medium term on the back of this, that’s more of a re-base than a material change to the outlook,” said ANZ senior economist Miles Workman.
The Reserve Bank was also likely to look through the noise, he said.
“Importantly, the level of per capita GDP [which rebounded 13.8 per cent] is still 1.2 per cent below its pre-crisis level, suggesting the full story is not captured in the headline figures.”
Westpac’s Michael Gordon said he would look closely at whether the level of activity could be sustained, or if it reflected a temporary period of catch-up after the Covid restrictions were lifted.
“It’s possible that GDP could even drop in the December quarter, without disturbing the overall recovery story,” he said.
Whatever happens in New Zealand through 2021, it will now be from a stronger economic base.
“Looking ahead, we expect the pace of the recovery to slow. After all, with consumption and residential investment already close to pre-virus levels, the scope for further gains is limited,” said Capital Economics’ Udy.
“But we still expect output to rise further in the months ahead.”
The second lockdown in Auckland in August would have weighed on overall activity in the third quarter, he said.
“And electronic card transactions rose further in October and November, pointing to a another rise in consumption. So we still expect GDP to rise further in the months ahead, in contrast to the RBNZ’s forecast of a second technical recession.”
The distribution for the vaccine should also enable borders to reopen by the middle of next year, he said.
“That’s why we’ve forecast GDP growth of 6 per cent next year, much stronger than the consensus forecast of 4.5 per cent.”
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