The economy has contracted for the first time in nine years as it felt the first impact of the Covid-19 pandemic, but the worst is yet to come.
Photo: RNZ / Rebekah Parsons-King
Official numbers show gross domestic product (GDP) fell a seasonally adjusted 1.6 percent for the three months ended March.
It was the first contraction in growth since late 2010 and the biggest single quarterly fall since 1991.
"Service industries contributed the most to the drop in activity, making up almost half of the overall fall in GDP. The hospitality industry... was among the most affected industries, falling 7.8 percent, as tourism fell after the border was closed to slow the spread of Covid-19," Stats NZ senior manager Paul Pascoe said.
However, there was a sharp fall also for the construction sector, and farming was affected by drought in some regions.
The number was worse than expected, with expectations of a fall of about 1 percent, and the economy shrank by 0.2 percent in the year ended March.
Finance Minister Grant Robertson said the fall in GDP was the price being paid for going hard and early to combat the pandemic.
"We've always acknowledged that the global Covid-19 pandemic, and the measures put in place to protect New Zealanders will impact the March and June quarter GDP data."
Worse to come
However, the current quarter to the end of June is expected to produce the biggest single slump in economic activity in more than a century.
"The worst of the economic impact is still coming for many: unemployment is rising and many firms are experiencing difficulty, with a tourism-shaped hole difficult to fill and impossible to ignore," ANZ senior economist Liz Kendall said.
"The recession will start to become evident in more lasting ways, even though the dent in GDP is past its worst."
Kendall said she was expecting the economy to shrink by 19 percent in the second quarter, before a rebound in the next three months of about 13 percent.
She said there would be a lot of "noise" in the economic numbers coming out, but she would be looking closely at indicators such as the housing market, business sentiment and consumer spending to get a sense for underlying economic momentum.
Robertson said the government's various relief and support packages including the $11 billion wage subsidy, tax refunds, and support for small businesses had cushioned the pandemic's impact, but he accepted more needed to be done.
"Now, our focus is on protecting jobs and supporting the economy to recover and rebuild... by opening up the economy quicker than forecast, we've got a head start on our recovery."
The continued closure of borders has hit the tourism sector, which accounts for about 5 percent of the economy, but there has been some offset with continued strong overseas demand for New Zealand food exports, in particular.