{"id":147608,"date":"2021-12-16T19:11:09","date_gmt":"2021-12-16T19:11:09","guid":{"rendered":"https:\/\/precoinnews.com\/?p=147608"},"modified":"2021-12-16T19:11:09","modified_gmt":"2021-12-16T19:11:09","slug":"liam-dann-what-gdp-data-really-tells-us-about-the-economy","status":"publish","type":"post","link":"https:\/\/precoinnews.com\/business\/liam-dann-what-gdp-data-really-tells-us-about-the-economy\/","title":{"rendered":"Liam Dann: What GDP data really tells us about the economy"},"content":{"rendered":"
OPINION:<\/strong><\/p>\n The Delta variant slammed the economy in the September quarter causing a 3.7 per cent slump in GDP, the second biggest quarterly fall since 1986.<\/p>\n It was also a considerably better performance than most<\/span> economists expected.<\/span><\/p>\n Markets had priced in a 4.1 per cent fall and the kiwi dollar rose half a US cent on the news.<\/p>\n In fact, the RBNZ had forecast a 7 per cent fall – which means it likely faces more inflationary pressure than it has currently accounted for.<\/p>\n That means interest rates could rise faster, or at least that the bank’s forecasts for rises throughout 2022 now look even more certain than they did.<\/p>\n So was GDP good news or bad news?<\/p>\n As ever, you can take your pick on how to read the data.The politicians sure did.<\/p>\n Finance Minister Grant Robertson was quick to claim it as positive, highlighting the resilience of the economy and the fact that – on an annual basis – the economy was 4.9 per cent larger than the previous year.<\/p>\n But Act leader David Seymour focused on the immediate damage done and described it as an indictment on the Government’s failure to prepare for the Delta outbreak.<\/p>\n Both views offer some truth – depending largely on how we contextualise events.<\/p>\n To be fair, Robertson’s view is more reflective of the analysis coming in from mainstream economists right now.<\/p>\n They’ve already priced in the economic hit and moved on.<\/p>\n But if we step back from the detail and market expectations it’s hard to dismiss the fact that the economy suffered.<\/p>\n The sectors hit hardest were those most affected by lockdown measures.<\/p>\n “Retail, accommodation, and restaurants” was down 13.3 per cent.<\/p>\n “Arts and recreation” wasdown 11.9 per cent.<\/p>\n Others hit hard were construction, down 9.6 per cent, and manufacturing, down 7.6 per cent.<\/p>\n But some – like IT and media – were barely dented (down 1.7 per cent).<\/p>\n Financial and insurance services and the real estate sector, by comparison, kept growing.<\/p>\n The final extent of the Delta damage won’t be revealed until we get the December quarter data (in March).<\/p>\n It seems likely that construction and manufacturing will have bounced back quickly with the move to lower alert levels.<\/p>\n The extent of the rebound for the others is far from certain, although retail demand appears to have held up well.<\/p>\n “The contraction is purely mechanical and does not reflect underlying demand \u2013 which we know is strong,” said Kiwibank chief economist Jarrod Kerr.<\/p>\n “Pent-up demand, a strong labour market and a significant pipeline of construction activity will underpin the Q4 rebound.”<\/p>\n So what then, if anything, does today’s GDP data really tell us?<\/p>\n It tells us we are learning to live with this pandemic.<\/p>\n We are getting better, on a collective level, at coping with the lockdowns and restrictions that life in a global pandemic brings.<\/p>\n “The NZ economy got through the Delta-induced lockdown better than hoped,” said ASB senior economist Jane Turner.<\/p>\n “Our early forecasts were for a quarterly decline closer to 7 per cent or 8 per centand [this compares] to the 11.4 per cent contraction over the first half of 2020 as a result of the first alert level 4 lockdown.”<\/p>\n <\/p>\n The June 2020 quarter slump of 10.3 per cent was the worst since modern records began in 1986.<\/p>\n That fall did reflect the big adjustment as international tourism activity was halted, StatsNZ national accounts industry and production senior manager Ruvani Ratnayake said.<\/p>\n But “some businesses may have adapted to and been better prepared for higher alert levels, compared with the first lockdown,” she said.<\/p>\n At a sector level contractions were far smaller than last year, said Kiwibank’s Kerr.<\/p>\n “For example, transport fell only by 3.3 per cent (quarter on quarter) this time around, compared to a massive 26.5 per cent drop last year.<\/p>\n “The economy was more operational than last year. Activity was shifted to online, and trading continued despite physical stores being closed.”<\/p>\n Business confidence held up better through this latest lockdown. Firms were more reluctant to let staff go.<\/p>\n Consumers felt more secure in their jobs. The housing market kept booming.<\/p>\n We are adapting and evolving. We are getting the systems and infrastructure in place to shift in and out of various alert levels more seamlessly.<\/p>\n The Government has the mechanisms in place to deliver financial support quickly and, if not without bureaucratic hurdles, certainly more smoothly than it did in 2020.<\/p>\n For some of the hardest-hit – especially in Auckland -this will all seem like cold comfort.<\/p>\n The cumulative effect of the pandemic on some – like accommodation, arts and recreation – will cause business failures and lasting economic damage.<\/p>\n But with more pandemic uncertainty to come as the Omicron variant spreads around the world, it is heartening to see a framework and pathway for economic survival beginning to emerge.<\/p>\n