Covid 19 coronavirus: Editorial: NZ's biggest fall in GDP won't tell real story

Lockdown slump: GDP likely plunged in the June quarter as lockdown stalled economic activity. Photo / Michael Craig

Editorial

Nothing is simple in 2020.

Today's June quarter GDP number will be both "better than expected" and the worst in New Zealand's history.

You can take your pick of whether to view that as a glass-half-full or a glass-half-empty scenario.

A month out from a general election the reaction will be politically charged.

GDP for the quarter will likely have fallen by between 11 per cent and 14 per cent, according to most economic forecasts.

That's an enormous spread of bets considering the forecasts usually differ by fractions of less than 1 per cent.

If GDP lands in that expected range it will represent a much stronger result than initially forecast when the country closed borders and went into lockdown.

Treasury officials forecast a 23.5 per cent drop over the period when New Zealand first went into lockdown.

More recently ANZ economists revised their pick - from a fall of 17.5 per cent to a fall of 12.5 per cent.

But it will almost certainly be the biggest fall in GDP we've seen.

Under the current GDP framework - formulated in 1987 - New Zealand's biggest fall was a 2.4 per cent decline in the March 1991 quarter.

Stats NZ says that under the previous framework, which dates back to 1955, the largest fall was 4.4 per cent - in December 1977.

The data will also confirm that New Zealand officially entered recession in the quarter - our first in more than a decade.

But economists warn that viewing the GDP number in isolation is largely meaningless.

Much of the slump was due to artificial constraints. The policy measures to control the spread of Covid-19.

We are expecting to see a record rebound in economic growth in the current September quarter.

So by the time we are able to confirm the recession, it's likely we're not in one anymore.

To complicate things further, most of the usual symptoms of recession - high unemployment, business insolvency - are not yet being fully felt.

The billions of Government support and record low-interest rates being engineered by the Reserve are propping up the economy.

Hopefully, that will spread the shock and buy time for businesses to adapt and survive the downturn.

Yesterday's Treasury update suggested unemployment will now peak at lower levels than previously forecast.

But ultimately we know much of the real economic pain is still to come.

So how should we measure our economic progress in the chaos of a pandemic economy?

Many economists now suggest we should look through quarterly numbers.

Port workers load this year's kiwifruit harvest on to a ship for export at the Port of Tauranga. Strong exports will likely help GDP hold up better than first expected. Photo / Alan Gibson

We should take the pre-Covid size of the economy - GDP at the end of 2019 - and we should measure our progress back to that level.

Does this mean we will ignore the data later today?

No, for economists it will be a revealing first draft of history.

Much of the interest will be in the detail, the way different sectors behaved and how resilient they were.

But as a barometer of progress or an indicator of the outlook, we need to keep in mind that we may never see the like of this unusual three-month period again.