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New Zealand Enters First Recession Since 2010 as Virus Bites

Tracy Withers

(Bloomberg) -- New Zealand entered recession for the first time in almost a decade as the coronavirus pandemic led to the nation’s biggest quarterly contraction in 29 years.

Gross domestic product fell 1.6% in the first quarter from the fourth, Statistics New Zealand said Thursday in Wellington. That’s the largest decline since 1991 and more than the 1% expected by economists. From a year earlier, the economy shrank 0.2% -- the first annual contraction since 2009.

New Zealand is bracing for a severe contraction in the three months through June after it responded to the pandemic by closing its border and imposing a strict nationwide lockdown that stayed in place until mid-May. The government has pledged NZ$62 billion ($40 billion) of fiscal support to help revive domestic demand and protect jobs, while the central bank has slashed interest rates and embarked on quantitative easing to drive down borrowing costs.

“We are expecting the bulk of the economic impact to hit in the second quarter,” said Jane Turner, senior economist at ASB Bank in Auckland, who tips a 17% contraction. “The labor market is set to deteriorate markedly with unemployment set to rise above 8%. The weaker labor market and job security concerns will likely result in many households becoming more cautious about spending over the coming year.”

The New Zealand dollar was little changed after the GDP report. It bought 64.50 U.S. cents at 11:24 a.m. in Wellington.

The initial impact of the Covid-19 outbreak began in early February with a travel ban imposed on arrivals from China and exporters facing difficulties in their supply chains. Tourism started to experience the pain as border measures were stepped up after the first case of Covid-19 was discovered on Feb. 28. Prime Minister Jacinda Ardern eventually took the unprecedented step of closing the border to all foreigners on March 19.

Only in the final week of the quarter, on March 25, was the nation placed into lockdown, requiring almost all retailers other than supermarkets to close and shutting down building sites and most factories.

Bank economists predict the economy will contract by as much as 19% in the second quarter, confirming New Zealand’s first recession since the second half of 2010. Some have scaled back the severity of the expected slump after the country succeeded in eliminating the virus and came out of lockdown earlier than anticipated, partially reviving consumer confidence and giving a fillip to retail spending.

The first-quarter contraction was driven by service industries, particularly hospitality as international travel stopped, the statistics agency said.

Other Details:

Manufacturing output fell 2.4% and construction dropped 4.1%Investment declined, led by construction and transport equipmentHousehold consumption fell, led by durable goods and travel spendingExports fell 2.1%, led by a decline in tourist spendingImports slumped 5.6% as New Zealand citizens stopped travelingGDP per capita declined 2.2% from the fourth quarter

(Updates with economist in fourth paragraph)

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