NZ wagers short GDP hit on a quick recovery

November 3, 2020 / By

It was no surprise to see a -12.2% fall in New Zealand’s GDP, reported for 2Q20.

After having ‘gone hard and gone early’, the New Zealand Government’s decision to try to eliminate COVID-19 through a strict lockdown was inevitably going to have serious short-term economic consequences. After all, a vast majority of the economy was effectively shut between 26 March and 27 April, with essential businesses being an exception.

To put this in an international context, New Zealand’s GDP performance for 2Q20 was 5.2 percentage points lower than that of Australia (the best performer) and also worse than Canada, the US, Japan and Germany. On a wider comparison, New Zealand saw a GDP position that was 1.6% worse compared to the average GDP performance of OECD countries in 2Q20.

Figure 1: GDP comparison between March 2020 and June 2020

Source: OECD

100 days of domestic ‘business as usual’

On the ground, the immediate return for achieving a goal of virus elimination in 2Q20 provided New Zealand’s population with a relatively ‘normal’ life during most of 3Q20. For just over 100 days, there was no community transmission of COVID-19. There was little need for social distancing, rather a sense of good fortune living in what felt like a virus-free bubble. Offices were populated, shops were busy, and restaurants were frequented.

However, community transmission returned to New Zealand on 11 August, and Auckland was placed in immediate COVID-19 Alert Level 3 lockdown for two and a half weeks. Despite this, two months later, the country is once again at Alert Level 1 and restriction-free.  Presently it appears that COVID-19 is broadly under control.  Now that the incumbent Labour Government has secured a clear majority mandate in the General Election on 17 October, the political course is set to remain largely unchanged for the next phase of the recovery.

Return on investment of NZ’s GDP decline

It is an often-stated cliché that it is impossible to put a price on health, but economically, over the coming two quarters it may well be possible.

Only time will tell whether the short-term economic impact of New Zealand’s COVID elimination strategy will represent a sound investment.  However, enough data is now available to assess comparative COVID-19 escalation control between countries. The results of such analysis demonstrate the beneficial difference of New Zealand’s strategy, in terms of COVID-19.

Figure 2: COVID-19 new cases in a 24 hour period (31 March 2020 vs 30 June 2020)

Source: World Health Organization

Table 1: COVID-19 International Case Comparisons 3Q20

Source: World Health Organization (as on 27 September 2020)

New Zealand, therefore, remains in a favourable situation compared to its key trading partners with the virus not having a far-reaching impact on society and the domestic economy. It will be interesting to see if this translates to better economic performance in 3Q20.

The impact on property

The property markets in New Zealand continue to function, although international activity remains understandably muted due to investors’ need to address strategies across multiple markets in varying degrees of business activity.

However, in New Zealand, offices are still open, shops are trading and industrial continues to perform well. While it will take time to accurately judge the trade-off between economic and health impacts of COVID-19, on a logical comparison basis, New Zealand certainly gained the opportunity to benefit from a more open market than its peers in 3Q20.

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