Huge 2.8% GDP jump suggests solid recovery from lockdown, Finance Minister says – Stuff.co.nz

A big jump in GDP in the three months to end of June bodes well a “solid economic rebound” from the current Delta lockdown, Finance Minister Grant Robertson believes.

Stats NZ announced the economy grew a staggering 2.8 per cent in the June quarter.

Bank economists had been forecasting strong GDP growth of between 1.1 per cent and 1.5 per cent, when compared to the March quarter, following 1.4 per cent growth in the earlier three-month period.

However, the actual figure has blown all forecasts out of the water.

READ MORE:

* GDP result this week: The leap before the fall

* Adrian Orr: Decision to hold official cash rate ‘literally down to the uncertainty of the day’

* Reserve Bank may need to begin basing OCR on facts rather than fears

Robertson said the economy continued to outperform “many of the countries we compare ourselves against”, in the June quarter.

”Australia rose by 0.7 per cent, the United States by 1.6 per cent and Japan by 0.5 per cent. Only the United Kingdom grew by more, up 4.8 per cent, reversing recent falls in activity,” he said.

“This is a very positive result and shows New Zealanders’ confidence in our economic recovery roadmap.”

ANZ chief economist Sharon Zollner has been expecting the economy to shrink by as much as 6 per cent this quarter, due to the lockdowns and restrictions since prompted by the Delta community outbreak.

But she warned on Thursday that was “starting to look a little optimistic”.

Zollner said ahead of Thursday’s Stats NZ release that while the June-quarter figure would be overtaken by current events, it was still useful to gauge how the economy had been performing pre-lockdown.

Stats NZ said the 2.8 per cent rise in June 2021 quarter GDP was led by the services industries. The primary and goods-producing industries also contributed to growth in the quarter.

Retail trade and accommodation was the largest contributor to GDP growth in the June quarter, Stats NZ said, driven by higher activity in the accommodation and food services sectors.

Business services also contributed to the growth, rising by 4.8 per cent over the three-month period due to higher activity in engineering, architectural and consulting services, it said.

Economic activity in the June quarter was ​4.3 per cent above the level it was the final three months of 2019 – the last quarter before New Zealanders first heard of the Covid pandemic sweeping China.

However, Stats NZ manager Paul Pascoe said Covid had caused significant changes to typical patterns of activity, with international travel and related expenditure currently at very low levels and not showing the normal large decline from the March quarter peaks.

“This has muted overall GDP growth in the March quarter and contributed to growth in the June quarter, when we account for the usual seasonal effects,” he said.

The Reserve Bank is next due to consider whether to raise the official cash rate (OCR) on October 6.

Governor Adrian Orr told Stuff late last month that the central bank had charted a course to higher rates and it was “not clear what would deviate us from our main path of wanting to reduce stimulus”.

“Even with Delta that still remains the obvious path for us, subject to hearing otherwise,” he said then.

ASB economists Mark Smith and Nick Tuffley said in a research note that the June quarter growth showed the economy had “considerable momentum” prior to the Delta outbreak.

They continued to expect a strong rebound in the last three months of this year after a “short-lived” drop in activity this quarter.

“The Reserve Bank may well consider a 50 basis point OCR increase in October as an option if the current outbreak is contained,” they said.

“But a 25bp increase would still appear prudent.”

Act Party leader David Seymour said the June GDP figure “might as well have happened in another decade”.

“Today’s reality is different,” he said just prior to its release.

The figure need to be seen in the context of “wartime levels of borrowing by the Government”, Seymour said.

“They believe interest rates will be low forever, but if they’re wrong it’s the next generation that will pay.”

The New Zealand dollar climbed a fifth of a US cent to US71.3c in the wake of the release, suggesting markets don’t regard the massive growth as purely ancient history.

But that appears much less of a reaction than might normally be expected if GDP overshot forecasts by more than a percentage point.

The share market showed little reaction, continuing to trade in mildly positive territory, with the NZX top 50 remaining up about 0.2 per cent on the day shortly after 11pm.