GDP shock: Economy slumps in final quarter of 2020

New Zealand’s economy shrank sharply in the last quarter of 2020 according to new data from StatsNZ this morning.

The 1 per cent drop in gross domestic product (GDP) in the December 2020 quarter was worse than unexpected.

In the lead up to this result, economists had been divided with some picking a contraction while others see momentum from the post-lockdown rebound carrying on to keep things in positive territory.

GDP declined 2.9 per cent over the year to December 2020, the largest annual fall ever in GDP for New Zealand, StatsNZ said.

“This is despite fewer restrictions on domestic travel and business activity in the December 2020 quarter compared to previous quarters,” it said.

“The decline in annual GDP is largely due to the effects of the alert level 4 national lockdown earlier in 2020.”

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.

Where the is emerging agreement is 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,” said ANZ’s Miles Workman in his preview report.

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.”

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