UPDATE 2-New Zealand's economy shrinks by most in three decades

(Adds finance minister’s, analyst’s comment)

WELLINGTON, June 18 (Reuters) - New Zealand’s economy shrank 1.6% in the March quarter, the largest drop in 29 years and the first quarterly fall since the December 2010, as the initial effects of coronavirus curbs paralysed activity.

The contraction was worse than economist forecasts for a 1.0% fall but smaller than the central bank’s projection for a 2.4% drop.

The decline is expected to have deepened in the current quarter due to the tighter restrictions seen in April and May, Finance Minister Grant Robertson said.

That would put New Zealand in its first technical recession, defined as two straight quarters of contraction, since 2010, although a recent easing in curbs is expected to aid a recovery in the second half.

“Now, our focus is on protecting jobs and supporting the economy to recover and rebuild through the investments made in Budget 2020 and by the COVID Response and Recovery Fund,” Robertson said. “By opening up the economy quicker than forecast, we’ve got a head start on our recovery.”

The 1.6% decline was the largest quarterly fall since the March quarter of 1991.

Annual production-based GDP fell 0.2% compared to a 0.3% rise forecast in the Reuters poll.

Economists have warned the data may not fully capture the extent of the economic impact of lockdowns designed to limit the spread of the coronavirus, which were only enforced toward the end of the first quarter.

“We are currently seeing a post-lockdown bounce in activity but the longer-lasting recessionary effects of this crisis will be determined by where the trend settles after that,” ANZ Senior Economist Liz Kendall said.

“For now, there is a lot of noise to wade through.”

New Zealand is among a handful of countries that have emerged out of the coronavirus pandemic, largely due to its strict lockdowns that forced almost everyone to stay at home and all but essential businesses to shut.

All restrictions, except border controls, were lifted last week, but the tough measures brought the economy to a standstill for weeks.

Service industries contributed the most to the drop in activity, while the construction industry and household consumption expenditure also fell.

The Reserve Bank of New Zealand (RBNZ) is widely expected to hold interest rates at its meeting on June 24, as it continues with its NZ$60 billion ($39 billion) quantitative easing (QE) programme to stimulate the economy. (Reporting by Praveen Menon; Editing by Lincoln Feast and Sam Holmes)