First quarter GDP figure release expected to show first contraction since 2010

The economy's golden run of nine years of uninterrupted growth is set to come to a shuddering halt with the release of first quarter GDP numbers on Thursday showing the impact of the Covid-19 pandemic, which forced the shutdown of most businesses.

Broad expectations are for a drop in gross domestic product (GDP) of about 1 percent for the three months ended March on the previous quarter, the first contraction since the end of 2010.

The data will capture only the first week of the lockdown, and will give an incomplete and outdated view of the economy.

Westpac senior economist Michael Gordon said: "We expect the drop in output to be widespread across sectors, though obviously with the greatest impact occurring in those areas that were directly affected by the travel restrictions ... and those deemed non-essential during the lockdown".

He said the economy would have recorded slight growth without the pandemic, even with the effects of a growing drought in some regions, but once the lockdown was imposed it was operating at about two-thirds capacity.

In recession already

The technical definition of a recession is two consecutive quarters of economic contraction.

But ANZ senior economist Liz Kendall said for all intents and purposes, the economy was in recession now, despite the flurry of spending and return to more normal levels of business under alert level 1.

"But don't be fooled; while the disruption is easing, the recession is just beginning... The recession is going to be nasty."

She said the second quarter - the three months ended June - would show the biggest hit to growth, and the economy would likely shrink by as much as 21 percent in the first half of the year, before a rebound.

However, Kendall said the shutting of borders to overseas tourists had wiped out about 5 percent of the economy, which would not be recovered any time soon, while rising unemployment and nervous consumer spending would weigh on domestic growth.

Alphabet soup of recovery

Economists have said the real issue is not the size of the slump in growth but the speed and size of the recovery.

The NZ Institute of Economic Research collates forecasts and the consensus is the economy will be 9 percent smaller by March next year on the previous year, before a near 7 percent rebound into 2022

"The growth outlook for the New Zealand economy is V-shaped, with a sharp decline in activity forecast for the coming year, followed by a strong rebound," its latest report said.

In the "alphabet soup" of recovery scenarios, the V-shape is the most optimistic, but many forecasters are more inclined to the U-shape - a sharp fall followed by a slower and more gradual recovery.

One of the bright spots partially offsetting the tourism slump is the strong demand for New Zealand food and agricultural exports.

NZIER principal economist Christina Leung said: "People around the world are focusing their spending on necessities such as food, from which New Zealand being a major producer of meat and dairy is benefiting".

Regardless of the difference in forecasts and which letter best describes the recovery, all are agreed that the government and the Reserve Bank (RBNZ) must be in for the long haul to support the economy through the worst shock in more than a century.

So far, the government has committed close to $30 billion for programmes, such as the wage subsidies, backing business loans, industry rescue packages, and retraining programmes.

It has another $20b uncommitted for future programmes, which is being funded by a mountain of borrowing.

And the RBNZ, which has slashed the official cash rate to a record low 0.25 pct, will need to keep up the bond-buying programme to ensure financial markets and the economy has enough cash and interest rates remain low.

ANZ's Kendall said: "Stimulus measures from the government and RBNZ are helping. The outlook certainly could have been worse. But it's going to be a long road ahead, and the news may get worse before it gets better".