Economy takes knock from Auckland floods and Cyclone
The economy is showing its resilience in the face of the second largest natural disaster to hit New Zealand, with GDP falling a fraction (0.1%) during the first three months of the year.
This result reflects the impact of the Auckland Anniversary floods and Cyclone Gabrielle, with estimates of hundreds of millions of dollars of lost production and activity across agriculture, forestry, fishing, transport and manufacturing due to the extensive flooding.
Ongoing strength in other parts of the economy helped mitigate the impact, with GDP being 2.9% higher than it was a year ago. Looking ahead, export growth, the tourism rebound, returning international students, migration inflows and investment in the recovery mean the economy is well-positioned to handle challenging times.
“The result was not a surprise. We know 2023 is a challenging year as global growth slows, inflation has stayed higher for longer and the impacts of North Island weather events continue to disrupt households and businesses,” Finance Minister Grant Robertson said.
“Today's outcome fits the definition of a technical recession by the barest of margins. But the resilience of the New Zealand economy, including historically low unemployment, means it will not have the impact that would normally be associated with this term.
“New Zealand can handle these testing times and grow out the other side. Record numbers of people are in work, and wages are rising faster than inflation to help households with cost of living pressures. Tourists are returning in greater numbers, overseas workers are filling vacancies, and our public debt levels are among the lowest in the world. Our Budget in May also invests in skills, research and development and infrastructure to grow a more productive economy.
“Our focus is on how we can support growth in the economy. Just yesterday we announced that New Zealand’s food and fibre sector is on track to set a new record high, with export earnings to hit $56.2 billion by 30 June 2023, 2.3 per cent higher than projected.
“The Government’s export strategy and securing of new Free Trade Agreements is working, with forecasts predicting primary sector export growth to $62 billion by 2027.
“Tourism is also rebounding, with international visitors spending $3.2 billion in New Zealand in the first quarter of 2023, up from $1.8 billion in the December quarter and 600,000 visitors expected to arrive this winter.
“The net migration gain of 72,300 in the year ended April 2023 marks six months of continued growth and is contributing to skills shortages being plugged and increases in economic activity.
“As a Government, we are targeting our support to where it is needed the most, including focussing on supporting recovery and rebuild work following the flooding. But we are balancing that with the need to take inflation pressure off the wider economy. Stats NZ reported today that central government consumption fell again in the March quarter, by 0.1%, following falls of 2.8% in December and 0.9% in September.
The Reserve Bank has indicated that interest rates have peaked and inflation is projected to fall, returning to the target range next year.
“The fall in central government consumption shows the Government is taking pressure off the Reserve Bank and interest rates with our careful and targeted spending. This will fluctuate over coming quarters as the Government puts significant resources to rebuild and recovery efforts, although overall the Treasury noted in the Budget that Government policy will be contractionary over the next four years,” Grant Robertson said.