New Zealand exits recession with record growth as it contains pandemic

WELLINGTON (REUTERS) – New Zealand’s economy grew a record 14 per cent in the third quarter from the previous three months, bouncing back from a Covid-19 lockdown earlier in the year that shut businesses and brought activity to a standstill, official data showed on Thursday (Dec 17).

Annual gross domestic product (GDP) rose 0.4 per cent, Statistics New Zealand said, with both figures beating expectations in a Reuters poll for quarterly growth of 13.5 per cent and an annual contraction of 1.3 per cent. The GDP numbers also topped the Reserve Bank of New Zealand’s November forecast of quarterly and annual growth of 13.4 per cent and minus 1.3 per cent respectively.

The New Zealand dollar was largely muted in response, as markets had factored in a strong recovery after a sharp contraction in the second quarter following Covid-19 restrictions.

Second quarter GDP was revised to a drop of 11 per cent from an initial estimation of minus 12.2 per cent. On an annual average basis GDP fell 2.2 percent in the year ended September 2020.

“This is as close as you get to a true V-shaped recovery,” said Kiwibank chief economist Jarrod Kerr. All industries recorded large increases in activity, and a second wave of infections in Auckland in August appears to have had a muted impact, he said.

New Zealand is among a handful of countries that managed to contain Covid-19 within its borders. Businesses, schools and offices have returned to almost pre-Covid normalcy.

The Treasury said on Wednesday it expected the country to bounce back sooner than previously thought. Fiscal and monetary stimulus has played a part in the rebound, and today’s results could move the dial on how much further support is needed, Westpac Bank said in a note.

“For the Reserve Bank’s part, the bottom line is whether inflation is on track to meet its mandated target. A stronger than expected economy certainly goes in that direction, but this needs to be balanced against other developments such as the sharply higher New Zealand dollar,” said Westpac senior economist Michael Gordon.

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