New Zealand set to post deepest economic slump on record

WELLINGTON (Reuters) - New Zealand is set to record its sharpest quarterly contraction and officially enter recession when it releases second quarter economic data this week, reflecting the full impact of coronavirus lockdowns on business.

Pedestrians walk past a sailing boat as it passes in front of the central business district (CBD) of Wellington in New Zealand, July 2, 2017. REUTERS/David Gray/Files

The median forecast of economists polled by Reuters showed GDP shrinking 12.8% quarter-on-quarter in the three months to June, following a 1.6% decline in the previous quarter.

That would put New Zealand in its first technical recession, defined as two straight quarters of contraction, since 2010, although an easing in coronavirus curbs has aided a quick recovery. GDP is expect to fall 13.3% year-on-year.

Prime Minister Jacinda Ardern’s government, which faces an election on Oct. 17, has said there will be “large drop” in activity in the June quarter, but that success in suppressing the virus locally is likely to help recovery prospects.

New Zealand was the only country to stay free of COVID-19 for more than 100 days, largely due to a strict lockdown in April and some parts of May that forced almost everyone to stay at home and businesses to shut.

The measures battered economic activity, but it has since bounced back despite a second wave of infections in its biggest city, Auckland.

That has prompted some analysts to temper their gloomy forecasts, though they acknowledge the predictions are open to revisions as there was uncertainty around the measurement of data during the lockdown.

ANZ Bank cut its quarterly forecast to a 12% decline from 17.5%, but said the focus has shifted to the third quarter, which would bring “the sharpest quarterly economic expansion we’ll ever see.”

“Market forecasts have clearly been trending towards a smaller negative number in recent weeks, as the data showed that the economy bounced back readily from the lockdown,” said Westpac Senior Economist Michael Gordon.

The central bank is expected to hold rates at its meeting on Sept 23 after re-affirming last month that the cash rate will remain at 0.25% until early 2021.

Reporting by Praveen Menon; Editing by Sam Holmes