September 16, 2021

GDP: solid growth in Q2, but Q3 will look less pretty

The latest lockdown will do damage, although not as much as the first one

New Zealand’s Gross Domestic Product (GDP) grew by an impressive 2.8 percent in the second quarter of 2021.

The annual growth rate (comparing the latest four quarters with the previous quarters) was 5.1 percent, although this overstates the underlying growth rate because the previous four quarters included the disastrous June quarter of 2020, when the country first went into lockdown.

In the second quarter of this year, GDP growth was strongest in Transport, postal, and warehousing (14 percent), Retail trade and accommodation (9.5 percent) and Agriculture, forestry, and fishing (5.5 percent). Retail trade and accommodation was the fastest growing industry on an annual basis (16.0 percent), while Construction (14.3 percent) and Wholesale trade (8.6 percent) were also star performers.

Growth in exports of goods and services was extremely strong in the June quarter (17.0 percent), although exports were down on an annual basis (-11.4 percent). By contrast, growth in investment in residential buildings was modest in the June quarter (1.3 percent), but vast on an annual basis (17.7 percent).

The underlying GDP growth rate before latest lockdown was around 4.0 percent.

Looking in the rear view mirror, it is difficult to get a clear picture of what was happening to economic growth, because of the plunge in GDP in the June 2020 quarter and the strong bounce back in the September quarter. However, BERL estimates that the true underlying annual growth rate, in the months before the current lockdown, was probably somewhere near 4.0 percent. As we noted in the latest edition of BERL’s Birds Eye View, survey data was showing strong growth in both manufacturing and the services.

Businesses have adapted well to operating during lockdown.

The question is what will happen to economic growth in the September quarter of 2021? Our view is that the current lockdown won’t have the same dramatic impact as the 2020 lockdown. There are hopes that the latest lockdown won’t be as long as the previous lockdown. Equally importantly, there are signs that businesses, especially in the consumer services, have adapted well to operating under restrictive conditions.

Only time will tell, but our tentative view is that the fall in GDP in the September quarter might be no greater than 5.0 percent.