Did New Zealand’s economy shrink or grow in the last quarter of 2020?
Economists are divided with some picking a contraction while others see momentum from the post-lockdown rebound carrying on to keep things in positive territory.
New Zealand crashed into recession in the first half of 2020 before a record bounce with 14 per cent growth in the third September quarter.
StatsNZ releases the official figures for the fourth December quarter at 10.45am this Thursday.
The one point of consensus among economists seems to be that everyone is prepared to be wrong.
“Forecasting GDP hasn’t got any easier as the impacts of lockdown abate,” says ANZ senior economist Miles Workman.
“We’ve pencilled in modest growth of 0.5 per cent (quarter on quarter), but wouldn’t be surprised to be surprised on the day.”
BNZ economists have 0.7 per cent growth pencilled in but say “there are numerous quarterly activity indicators on show, which will test our view.”
“We have long thought that GDP, after a big bounce in Q3, would be choppy to flat across Q4 and Q1 combined. We remain of that view,” says senior economist Craig Ebert.
Meanwhile ASB has revised down its expectations and sees the quarter dipping into negative growth territory at -0.1 per cent.
“That would mean annual growth slowed from 0.4 per cent in Q3 to 0.1 per cent in Q4,” said ASB senior economist Jane Turner.
Westpac is gloomier still, picking a quarterly fall of 0.3 per cent.
“Our forecast appears to be at the low end of the market range,” says acting chief economist Michael Gordon.
“Many are picking a positive result, while the Reserve Bank assumed a zero in its most recent Monetary Policy Statement.
“A negative out-turn may help to dampen the recent market enthusiasm towards ‘inflation trades’ and drag interest rates lower – indeed, they have already come off their highs in the last few days.”
While the variability of the pandemic effect is making economists less confident about specific numbers, there is emerging agreement that the economy will basically track side-ways from here until we make progress on opening borders.
“Our expectation is that 2021 is going to be a broadly sideways year for economic activity, as some industries struggle with capacity constraints and others remain suppressed on the back of the closed border,” says ANZ’s Workman.
Whether the fourth quarter of 2020 was marginally up or down wouldn’t shift that view, he said.
“Policymakers are unlikely to be swayed much by the Q4 release either,” he said.
“Vaccine efficacy and rollout, and the persistence of housing-induced domestic momentum from here, are arguably more important than how the economy capped off 2020.
“We know the recovery from lockdown has been impressive but that significant headwinds and uncertainty remains.”
With a lot of New Zealand’s GDP growth in recent years coming from population growth (net migration) and, with borders closed until the end of the year, “weak population growth will limit the degree of economic recovery”, says ASB’s Turner.
“Nonetheless, the end is in sight,” she said, noting progress on vaccinations globally and locally.
“From this point on, businesses should become more confident on the outlook and look to take action on employment and investment plans over the coming year.
“The overall picture for 2021 remains one of muted growth, but prospects for 2022 have improved.”
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