Statistics New Zealand has announced the largest fall in Gross Domestic Product since records began in 1987, with a historic 12.2 per cent fall in New Zealand’s economy.
This means New Zealand is now in a recession, generally characterised by two or more quarters of negative growth.
But Finance Minister Grant Robertson said today that the result was better than Treasury's Pre-Election Economic and Fiscal Update (PREFU) forecast of a 16 per cent fall in GDP. That prediction was released yesterday.
“The June quarter includes almost the entire time New Zealand was in Alert Level 4 which we moved into on March 26, so this result is not surprising. Going hard and early means that we can come back faster and stronger," he says.
"We already know we have bounced back since the end of June, with the New Zealand activity index in July up two per cent on the same period last year. Electronic card spending was also 11 per cent higher in July than the same period in 2019."
Some industries were more affected than others by the border closures and alert level restrictions.
Retail trade, accommodation and food services fell by 25 per cent, construction was down 26 per cent, transport, postal and warehousing saw a 39 per cent decline because of restrictions to air travel, manufacturing dipped 13 per cent and mining fell by 44 per cent.
“The structure of the New Zealand economy which relies heavily on tourism and international education means that this GDP result is in line with expectations," Robertson says.
But National's finance spokesperson Paul Goldsmith says the drop in GDP is "proof that this Government has failed to keep our economy progressing".
“This is the deepest recession in living memory. It is already having a devastating impact on Kiwi families. An extra 70,000 New Zealanders have lost their job since March, and a further 100,000 are forecast to lose their jobs in the next two years," he says.
“New Zealand is looking at a longer, more painful economic crisis than earlier forecast. There is a better way. It requires a serious growth plan to get us back on track."
National is set to release its fiscal plan tomorrow.
Compared to New Zealand's 12.2 per cent drop, Australia had a -7 per cent, US -9.1 per cent, Canada is -11.5 per cent, and UK is -20.4 per cent.
In the same quarter last year New Zealand grew by .2 per cent, so the change is -12.4 per cent.
The first quarter of 2020, reported in June, saw GDP decrease by 1.6 per cent as the economic impact of Covid-19 was unfolding.
Stats NZ accounts senior manager Paul Pascoe said at the time it was the "largest quarterly fall since the 2.4 percent decline in the March 1991 quarter".
"The 1.6 per cent fall surpassed quarterly falls during the global financial crisis in the late 2000s."
Pascoe says the GDP figures released today reflect “this has been a very sharp, very broad shock to the economy”.
“Industries like retail, accommodation and restaurants, and transport saw significant declines in production because they were most directly affected by the international travel ban and strict nationwide lockdown. Other industries like food and beverage and manufacturing were essential services and fell much less,” says Pascoe.
Only seven per cent of the March quarter was in Alert Level 4 lockdown.
ACT leader David Seymour says the figures have failed to balance the Government's approach to the pandemic.
"It’s been too busy lecturing New Zealanders from the podium and hosing money at dubious projects when it should have been asking: ‘What economic activity can we safely allow?’"
Yesterday, Treasury released the Pre-Election Economic and Fiscal Update (PREFU) - painting a picture of sustained deficits and a forecast contraction in GDP of 16 per cent in the June 2022 quarter.
New Zealand’s near-term economic outlook was "less negative", according to Treasury, than previously expected but the medium-term outlook deteriorated due to the possibility Covid-19 would be more persistent amid a worsening global outlook.
On March 17 this year, Robertson said a recession in New Zealand was "almost certain" as Covid-19 was already wreaking havoc on businesses across the country.
"The advice that we are receiving is that the shock will be larger than that seen during the global financial crisis," Robertson said at the time.
"We are going to see many New Zealanders lose their jobs, and some businesses fail. We will have an extended period of deficits and our debt as a country will have to substantially increase."
Just 16 days earlier, Robertson told TVNZ1's Q+A his advice at that time was that there would not be a recession - but acknowledged the situation was moving fast and advice could be revised in a matter of weeks.