14 Sep 2020

Awful economic numbers already 'ancient history'

2:40 pm on 14 September 2020

Economics has long been dubbed the dismal science - growth numbers due out this week are certain to bear that out.

New Zealand dollars

Photo: 123RF

Gross domestic product (GDP) figures for the three months from April through to June are set to show the biggest economic contraction on record, with estimates varing between a 11 percent contraction to 15 percent.

Coming on top of the 1.6 percent fall in the first quarter of the year then the technical definition of a recession - two consecutive quarters of negative growth - will have been satisfied.

For the record, the last recession was in late 2010 in the wake of the global financial crisis, and the previous biggest single quarterly fall - under the current method of calculation - was 2.4 percent fall at the start of 1991.

But for all that the numbers will be greeted with shock and awe type headlines, and seized and spun by commentators of all persuasions, although economists are treating the outcome with a degree of nonchalance.

"We're not going to get too hung up on the Q2 figures... given how rapidly this crisis has evolved, Q2 is already beginning to feel like ancient history," ANZ senior economist Miles Workman said.

The data will come with a big warning about the accuracy given Stats NZ's collection of data has been disrupted by the pandemic, forcing the agency to look for alternative sources and make estimates in some cases. This quarter's numbers will inevitably be revised over coming months.

The detail will show that no sector of the economy got through the lockdowns of March and April unscathed, there were just various degrees of damage.

With services, such as retail, hospitality, and travel accounting for about two-thirds of the value of the economy, it will be no surprise that these sectors, along with construction, will take the biggest hit. The "best performing" sectors will be agriculture and utilities, such as electricity.

ASB senior economist Jane Turner said the quicker-than-expected move out of lockdowns, and the stronger-than-expected rebound in consumer spending would have taken the edge off the worst of the decline, and laid the basis for a strong rebound in the three months ended September.

"We're expecting a strong rebound in Q3... it was largely business as usual for many people, but we won't quite get the full recovery, partly because we stepped back in to alert level 2, and also because there's still a bit of a hole in the economy caused by border closures."

International tourism and foreign students have contributed about 5 percent of GDP in recent years, but until restrictions are eased or lifted the loss of that income will be an economic headwind.

Turner said the numbers would underscore the need for the measures taken by the government and the Reserve Bank to pump money into the economy to continue for some time, much of which is being paid for with borrowed money - albeit at bargain basement interest rates.

This week's GDP figures, due out on Thursday, are likely to show the economy back at 2015/16 levels. The issue will be how does the economy get back there, and how long will it take.

Get the RNZ app

for ad-free news and current affairs