The global economy was left reeling by Covid-19 (Photo: Getty Images)
The global economy was left reeling by Covid-19 (Photo: Getty Images)

Covid-19March 18, 2021

The New Zealand economy experienced its largest ever decline in 2020

The global economy was left reeling by Covid-19 (Photo: Getty Images)
The global economy was left reeling by Covid-19 (Photo: Getty Images)

It’s a year for the history books in all the bad ways: in 2020, Covid-19 pummelled New Zealand harder than the great depression or the global financial crisis. Justin Giovannetti reports.

New Zealand’s economy experienced its greatest ever annual decline in 2020, contracting by 2.9% as Covid-19 shut the country’s borders and upended global trade.

The latest figures, released this morning by StatsNZ, show an economy that hit the brakes in the final months of last year as continuing restrictions on travel began to weigh on the country’s businesses.

New Zealand’s economy shrank by 1% in the final three months of the year, the worst showing among the countries with which StatsNZ compares its figures. The world’s rich economies grew by 0.9% on average during that period, while Australia and Japan’s GDPs grew by nearly 3% in the December quarter.

“The December 2020 quarter results reflect an easing of activities following a post-lockdown catch up in the previous quarter, and the continued absence of international visitors,” wrote StatsNZ.

New Zealand’s economic decline over the past year wasn’t unique or even exceptional when compared to the world’s other economies. Comparing changes in annual GDP between countries is tricky and that data isn’t collected by the OECD, the club of rich countries.

However, one way to look at progress over the past year is to compare the December 2020 quarter’s economic data, with the final three months of Covid-free data available, which is one year earlier, the December quarter of 2019. That compares the last three months of our pre-Covid economy, at somewhere near full capacity, to where it is today after a year of Covid.

Comparing those two points in time, New Zealand’s economic growth declined by 0.9%. Australia’s fell by 1.1%. The US dropped by 2.4%. Canada declined by 3.2%. The European Union overall slipped by 4.6%. The UK, take a breath, plummeted by 7.8%.

By that metric, only four economies were in a better place after Covid-19. That small group was led by China, whose rate of economic growth increased by 6.5%. Overall, New Zealand placed well among rich countries by that measurement, beating all our historic allies. It was, however, still a horrific year for the New Zealand economy.

Each quarter of 2020 tells a vivid story about the country’s economy and global woes. It’s a year that will go down in New Zealand’s economic history, having beaten the global financial crisis and the great depression for how awful it was.

After stagnating in the final months of 2019, New Zealand’s economy fell by 1.2% in the first three months of the year. That’s a time during which Covid-19 became a household name and spread through China, northern Italy and eventually North America.

In the second quarter, the economy plunged by 11% as New Zealand went into level four lockdown. It was by far the worst decline in the country’s history.

Released from their homes, New Zealanders went on a spending spree in the third quarter, propelling growth of nearly 13.9% in only three months. That was the largest rally in the country’s economic history, by far. The mad yo-yoing on the usually sedate economic charts then ceased in the fourth quarter as the economy dipped slightly into the negative.

The December quarter saw nearly half the country’s industries go into decline, a broad indication that consumers and businesses were pulling back on their spending.

The quarter’s fall was led by an enormous decline in construction spending, down nearly $400 million from the previous quarter. That’s a nearly 9% decline in three months. The fall would have been worse if not for growth in residential construction of 1.9%, propelled by incredibly rapid house price increases. 

Construction fell by 7.3% annually in 2020, a surprising contraction amid complaints of shortages of trades people and construction goods due to high demand. “Construction activity remains at historically high levels, despite this quarter’s fall,” said StatsNZ’s Paul Pascoe.

What should have been the start of the country’s international tourism season in the last months of 2020 instead saw empty hotels and cafes. Spending on retail, accommodation and restaurants fell by $250 million in the year’s final quarter, a drop of 5%, largely due to the absence of tourists.

The collapse in air cargo and travel to New Zealand meant that transport and warehouse spending fell by nearly 26% in 2020 – that’s despite a massive rally at the end of the year, presumably due to Christmas shopping.

While there had been an expectation that New Zealand’s primary industries would power through the economic disruptions of 2020, they largely didn’t. Sheep and dairy production fell sharply during the year as goods exports fell by 3%.

Manufacturing also fell by 3% during the year, while agricultural industries declined by 2.7% annually, joined by sharp decreases in mining and forestry. Amid an ocean of red indicators and economic warning lights, fishing was one of the few industries that had a good 2020, growing by 1.3%.

The political reaction this morning was swift. The National Party’s Andrew Bayly said the sharp decline in construction indicated infrastructure investment that was supposed to carry the country through the Covid-19 slump never happened.

“This was why the government originally announced its shovel-ready projects, the whole point of the programme was speed,” said Bayly in a statement. “They were meant to give our economy a boost and offset job losses. Instead the government has shown an inability to deliver with construction only started on 49 of the 205 shovel-ready projects.”

The Council of Trade Unions joined in with the criticism, with economist Craig Renney calling on the government to provide more economic support in its coming budget. Amazingly, Renney pointed out that the government’s share of the economy actually dropped in 2020 instead of the increase that would be expected if it had spent significant amounts of money.

“The recovery from Covid-19 continues to be uneven. When today’s GDP data is combined with recent unemployment and inflation numbers, we see a society where some people are experiencing significant financial hardship,” wrote Renney.

Finance minister Grant Robertson took a positive approach to today’s data, saying it shows New Zealand is “among the best in the world despite the impact of the Covid-19 pandemic”.

He gave no indication that he expects to spend more on infrastructure or other new investments when he tables a budget in the coming months. “Our economy remains strong. We will stick to our plan that has successfully helped New Zealand through this pandemic,” Robertson said in a statement. 

So what does today’s economic data mean for the average New Zealander? After an incredibly volatile 2020 that saw a global pandemic and unprecedented economic falls and starts, the average person in this country can now buy about 3.7% less stuff than they could a year ago. That’s a very rough figure for disposable income based on the value of goods flowing into the country and being exported, along with investments, population growth and a number of other indicators.

To Renney’s point, the average New Zealander is not better off. That average figure will conceal some people who have lost substantial ground over the past year.

Despite border restrictions, the country’s population continued growing through the year, adding about 10,000 people in the final months of 2020. Nearly 100,000 new New Zealanders were added to the country last year.

This story has been updated with additional data from StatsNZ and more reaction.

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