New Zealand Economy Surges Out of Recession Amid Spending

(Bloomberg) -- New Zealand’s economy bounced back strongly from recession in the third quarter as massive fiscal and monetary stimulus sparked a recovery in consumer spending.

Gross domestic product surged 14% from the second quarter, when it contracted a revised 11%, Statistics New Zealand said Thursday in Wellington. Economists forecast a 12.9% gain. From a year earlier, the economy grew 0.4%, confounding the consensus forecast for a 1.8% decline.

New Zealanders have gone on a spending spree since the nation eliminated community transmission of Covid-19 in May and then successfully contained sporadic outbreaks. However, the border remains closed to foreigners, crippling the tourism industry, and many businesses have put investment and hiring plans on hold, which is projected to push the jobless rate higher in 2021.

“Fiscal and monetary stimulus have no doubt played a part in the speed of the economy’s rebound,” said Michael Gordon, senior economist at Westpac Banking Corp. in Auckland. “Today’s stronger than expected results could move the dial on how much further support is needed.”

Gordon said that a stronger-than-expected economy aids the central bank’s efforts to revive inflation, “but this needs to be balanced against other developments such as the sharply higher New Zealand dollar.”

The currency has gained 5.3% the past three months, and was appreciating ahead of the rose release after Prime Minister Jacinda Ardern announced plans to offer Covid-19 vaccines to the entire population in the second half of 2021. The kiwi dollar rose further after the GDP release and bought 71.11 U.S. cents at 11:42 a.m. in Wellington.

The government’s pursuit of an elimination strategy saw it impose one of the strictest lockdowns in the world but allowed a quicker resumption of economic activity once the virus was stamped out. New Zealand has recorded 1,744 confirmed cases of Covid-19 and just 25 deaths.

A fresh community outbreak in mid-August required a second, six-week lockdown in largest city Auckland, but the country has fared better than many of its peers. U.K. GDP fell 9.6% in the third quarter from a year earlier, while Australia’s fell 3.8%.

The government pledged NZ$62 billion ($44 billion) of fiscal support to help revive domestic demand and protect jobs, while the central bank has slashed interest rates and embarked on quantitative easing and term lending programs to further drive down borrowing costs.

Still, the Reserve Bank and some economists have cautioned the economy may contract in the fourth quarter and even face a double-dip recession early next year, citing slower global growth and the possibility that the border will remain closed to most visitors until at least the second half of 2021.

Other Details

The third-quarter expansion was driven by construction and services industries -- in particular retailing, accommodation and restaurants, the statistics agency said.

• Manufacturing output rose 17% from the second quarter
• Construction jumped 52%
• Household consumption increased 14.8% led by cars, televisions and domestic air travel
• Investment surged 27% led by residential building
• Exports rose 4.9%, while imports gained 10.6%
• GDP per capita climbed 13.8%

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