New Zealand's economy plunged into recession for the first time in a decade, posting a record contraction in the June quarter due to the coronavirus pandemic.
New Zealand has fallen into its deepest economic slump on record in the second quarter as its battle against the coronavirus pandemic paralysed business activity.
Gross domestic product contracted a seasonally adjusted 12.2 percent quarter-on-quarter, its sharpest quarterly contraction on record and largely in line with forecasts of a 12.8 percent decline from economists polled by Reuters. GDP fell 12.4 percent year-on-year, official data showed on Thursday.
The Reserve Bank of New Zealand had forecast a quarterly and annual GDP decline of 14 percent in its August statement.
Growth has been hit by a standstill in economic activity as a strict nationwide coronavirus lockdown in April and parts of May forced almost everyone to stay at home and businesses to shut.
The GDP data confirms New Zealand's worst recession, defined as two straight quarters of contraction, since 2010, with GDP in the March quarter falling 1.6 percent.
Record breaking rise ahead?
In comparison, second quarter economic growth in neighbouring Australia which enforced a less stringent Covid-19 lockdown fell 7.0 percent, while the United States recorded a 9.1 percent drop.
But economists say New Zealand will bounce back faster, while other nations are still struggling to contain the coronavirus.
"We expect the June quarter’s record-breaking GDP decline to be followed by a record-breaking rise in the September quarter," said Westpac Senior Economist Michael Gordon.
Prime Minister Jacinda Ardern's government, which faces an election on October 17, has said success in suppressing the virus locally is likely to help recovery prospects.
Treasury forecasts released on Wednesday showed that while New Zealand's response to Covid-19 helped lessen the short-term economic shock, massive debt and continuing disruptions will delay a full recovery.
Economists say the GDP data will have little impact on the central bank's policy, which is expected to hold interest rates at a record low of 0.25 percent at its meeting on September. 23.
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New Zealand has recorded only 25 coronavirus deaths in a population of five million and cases have been largely contained since late May, aside from a flare-up in Auckland last month.
But the opposition National Party said Ardern's centre-left government had failed New Zealanders by failing to keep the economy moving.
National's finance spokesman compared the response to Australia, which recorded an economic contraction of seven percent in the June quarter after adopting a more flexible approach to lockdowns and border controls.
"The lack of pragmatism and a clear plan from (Ardern's) Labour has made the economic hole deeper and the impact harder than it needed to be," he said.
"This economic damage was recorded in three months but will last for decades to come, this is the deepest recession in living memory."
New Zealand most recent recession was in 2008-09 and until the first three months of this year it had recorded non-stop quarterly growth since 2010.
Kiwibank chief economist Jarrod Kerr said the scale of the June quarter decline was unprecedented.
"We've never seen anything like this. It was traumatic," he said.
"Service exports were stonewalled, and down 40 percent in the quarter, consumption was down 12 percent, and investment was slashed by 20 percent."
But he said the figure was a one-off that was set to be followed by a growth surge of 10 percent in the September quarter, which would also be a record.
"Businesses and households have clearly adapted to trading in a world with limited face-to-face contract," he said.
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