Drought and the first week of lockdown dragged GDP down the most since the 1991 recession, but much worse is expected in the June quarter
Just the start: New Zealand’s economy contracted the most in 29 years in the March quarter as travel restrictions and a near total lockdown in the final weeks of the quarter stopped parts of the economy. GDP fell 1.6 percent in March, the first quarterly fall since December 2010 and the largest fall since March 1991, Stats NZ said. It was also larger than the consensus economist forecast for a 1.0 percent fall.
All sectors weaker: Service industries, which make up two-thirds of the economy, fell sharply during the quarter. The hospitality industry was amongst the most affected sectors, falling 7.8 percent, as tourism numbers slumped after the border was closed to slow the spread of Covid-19. Goods-producing industries, which make up about 20 percent of the economy, fell 2.7 percent. Construction was the biggest contributor to the drop, falling 4.1 percent as building sites were shut down.
Wallets shut: Household spending declined 0.3 percent in the March quarter due to weaker spending on services, particularly restaurant meals and ready-to-eat food. Household spending on durable goods fell 2.8 percent, with new and used motor vehicles contributing the most to the drop. However, this was offset by a rise of 5.4 percent in spending on non-durable goods, such as food, beverages and other household consumables as people stocked up on essentials before the lockdown. Economists are forecasting the economy to have fallen between 16-19 percent in the current quarter.
Exports suspended: New Zealand King Salmon has temporarily suspended exports to China after salmon products from around the world were removed from Chinese supermarket shelves and restaurant menus following an investigation into a Covid-19 case in a Beijing market. A new cluster of coronavirus infections in Beijing last weekend has been linked to a produce market in the city. In the five days through June 16, Beijing reported 137 domestically transmitted cases, most of which were related to the now-closed local produce market.
Fingers crossed: NZ King Salmon said it “suspended China shipments in the short term to assess this rapidly evolving situation”. The company exports fresh salmon to China through the ports of Shanghai and Guangzhou which represents around 2 percent of its total sales.
‘We’ll be back’: “We are optimistic that the situation will stabilise and New Zealand’s reputation for safe, nutritious food will remain desirable for customers in China,” NZ King Salmon said in a statement. Its shares closed unchanged at $1.80.
Feeling the pain: Air New Zealand forecast an underlying loss of up to $120 million in the June year due to the Covid-19 pandemic. However, there are an estimated $624 million in additional write downs, impairments and other significant costs not included in the total. The $120 million loss for the year ending June 30, compares to a pre-tax profit of $374 million in the June 2019 year.
Heavy landing: The carrier suspended its earnings guidance in March when the true extent of the pandemic began to emerge. At the time it had expected underlying earnings of between $350 million and $450 million. A series of one-off costs resulting from the pandemic including impairment charges on aircraft of between $350 million and $450 million and restructuring costs of between $140 million and $160 million as the airline significantly cut staffing have also weighed on the result. Offsetting these charges was the potential for a $21 million gain on the sale of its international airport slots.
Bounced: After peaking at $1.94 last week, Air New Zealand’s shares closed down 5.7 percent at $1.56, but almost double its March 23 low of 80 cents.
