Te Whanganui-a-Tara – Although GDP shrank by 0.2 percent in the March 2022 quarter, A New Zealand economic recession has been avoided just for now, but Omicron pandemic related factors continue to cloud the outlook and Aotearoa is not out of the woods.
New Zealand’s GDP fell by 0.2 percent in the first quarter of 2022; a bigger drop than expected. GDP per capita also fell by 0.2 percent, economic analyst Berl says.
In the first quarter of the year, Omicron was rampant in the community and daily covid cases were on the rise. This led to worker absenteeism and many people self-isolating. On top of this, inflation had begun to pick up speed, and the effects of the war in Ukraine had started to reverberate across the globe.
GDP in the goods-producing (-0.1 percent) and service (zero percent) industries was virtually unchanged.
In taking a closer look at the sub-industries, construction (1.7 percent), education and training (5.4 percent), and wholesale trade (1.5 percent) had the highest rates of quarterly growth.
Construction activity bounced back in the first quarter, and consents issued suggest a healthy pipeline of work. However, materials shortages, cost pressures and rising interest rates will, almost certainly, hold back building activity moving forward. Education and training experienced a big bounce back as schools and early childhood centres reopened.
On the flip side, the transport, postal and warehousing (-2.7 percent), retail trade and accommodation (-1.9 percent), and manufacturing (-1.4 percent) industries took the biggest hits. A surge of Omicron cases led to people restricting their own activity, and spending, in retail settings. Worker absenteeism and poor primary sector production contributed to weaker manufacturing output.
Total expenditure on GDP fell by 0.1 percent. Household consumption was a bright spot, growing by 4.6 percent over the quarter. This is not entirely surprising considering the loosening of restrictions and the inability of people to spend overseas. The biggest jump was in spending on services (5.8 percent).
Total exports were down 14.3 percent over the quarter. Service exports, which include travel and insurance services, continue to be plagued by the effects of the border closure, falling by nearly 25 percent over the quarter. Goods exports fell by 6.2 percent.
Shipping woes and input and labour constraints in the manufacturing and primary sector have all contributed to this, along with soft global economic conditions. By comparison, total imports fell by 2.8 percent.
All factors considered, we do not expect GDP to drop again in the second quarter of this year. A rebound in services and exports, along with net migration inching upwards, will provide support.
It is hard to overstate just how uncertain the longer-term outlook is at the moment. In saying that, the scales look to be tipping towards a slowdown. Increasingly tight monetary policy and high inflation are dampening demand, which will likely encourage consumers to tighten their belts.
