Economic Weekly: NZ’s remarkable resilience

We released our latest Quarterly Economic Forecasts today, and taking a look back and comparing our current forecasts against our previous set of Quarterly Forecasts finalised in May we have been surprised by the remarkable resilience of the NZ economy.  Back in May, we were bracing ourselves for a recession double the size of that seen in the 2008/09 Global Financial Crisis (and still found ourselves at the more optimistic range of economic forecasters).  Subsequently, we have found ourselves nudging our GDP forecasts higher – we now expect the economy to shrink around 5% when comparing the end of 2020 with the end of 2019, vs a 6% decline we had previously forecast.  Furthermore, we see some risk of further upward revisions over coming weeks.  Ahead of the upcoming Q2 GDP release (September 17^th), StatsNZ releases key detailed economic surveys including last week’s Building Work Put in Place survey - which showed that construction activity held up better than expected, particularly construction of residential dwellings.  This survey, along with other recent data, suggest that some types of activity recovered more quickly than we expected through Alert Levels 3 and Alert Levels 2 – and that production output was not as constrained by social distancing requirements as we had expected.  If this finding is corroborated by additional surveys (such as the Economic Survey of Manufacturing, out on Wednesday) and ultimately Q2 GDP – we will also need to fine tune our estimates of how much economic activity takes place under Alert Level 3 and Alert Level 2.  The upshot is that the economic cost of the current lockdown, for example, isn’t likely to be as high as we previously estimated.  The ANZ August business confidence figures released last week showed little reaction in business confidence from the news of a second lockdown – the lack of pessimism may reflect that NZ pulled through the first lockdown much better than expected.  We will be watching the September preliminary results closely to see if business confidence remains steady in light of the August resurgence.