Economic Weekly: NZ enters recession – now for the recovery

GDP figures for the June quarter released last week were within economist expectations and suggest economic activity contracted around 12% as a result of the initial COVID-19 pandemic response (see our full write up here).  The key learning from the Q2 data is that activity appears to have recovered faster and stronger over the second half of the quarter once alert level restrictions were gradually eased through May and June.

As mentioned in recent commentary, we believe more activity was able to take place under Alert Level 2 and 3 than we initially assumed. Using the Q2 GDP data, we have updated our estimates – while we still estimate that only 67% of activity was able to take place under Alert Level 4, we now estimate 88% of activity took place under Alert Level 3 (up from 80%) and 96% of activity took place under Alert Level 2 (compared to 93% previously).

Furthermore, movement data suggest the economy’s ability to adapt to the Alert Level restrictions has continued to evolve.  According to Google Maps movement data, there was more movement in Auckland’s workplaces, retail and recreation during August’s Level 3 restrictions compared to during May.  Likewise, we are seeing less impact from Level 2 – with the rest of the country seeing very little overall reduction in movement/activity relative to Level 1.

As a result, we have revised our H2 2020 GDP forecasts higher.  Other factors contributing to additional activity taking place include a higher number of international visitors remained in NZ than we initially expected.  Over time, as these visitors do leave and are not replaced, the impact will be felt – and will likely be particularly noticeable to tourism operators over summer during the typical peak in international visitor numbers.  However, we are also seeing some offset with New Zealander’s taking holidays at home – so do your part for the economy and book a summer holiday (and preferably not all at the same time – spread the demand through the summer months!).