NZ GDP Down By 1% In Q4 2020: What Does This Mean For Kiwi Families?

Date Mar 18, 2021
Blog category Credit Card
Blog category Insurance
Blog category Kiwisaver
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By Sieg C
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It’s no big news that the economy has been declining over the past few months because of COVID-19. However, the decline has been steady and mostly predictable by statistics. What’s significant about this drop is, it was way worse than expected. 

According to Stats NZ, the GDP per capita over the last quarter of 2020 declined by 1.2%, while the real gross disposable national income per capita fell by 1.1%. Over the past year to December 2020, the overall GDP decline adds up to 2.9%. 

These numbers are very alarming, but what does this mean for regular Kiwis? How does this affect your daily life and work opportunities?

What are the predictions?

Leading banks have been analysing the figures about GDP, and they’re very much divided about it. ANZ and KiwiBank predict a 0.5% gain in three months to the end of the year. BNZ anticipates a 0.4% gain while ASB and Westpac believe a huge drop is inevitable.

While the drop has taken banks and economists by surprise, it’s still within range of the worst-case scenario. Finance Minister Grant Roberston assures the New Zealand economy is among the best performers amidst the pandemic. He added the increased economic activity during the third quarter of 2020 evens out this plunge.

However, some forecasts predict a double-digit recession this 2021. Although the economy rose during the September 2020 quarter, it’s believed to only be some type of calm before the storm. A stronger recession is expected due to the loss of revenue from tourism last summer.

What caused this unexpected drop?

Although the majority of New Zealand has fought COVID-19 successfully, lockdowns are still utilised in some places where possibilities of local transmission can happen. These lockdowns can have lasting effects, especially on the economy. That’s exactly what influenced the unexpected drop.

Several lockdowns last third quarter and early fourth quarter of 2020 had lasting impacts on the economy. This is despite having no restrictions on local movement and business activities in the last two months of the year. The lack of revenue from international travellers have also contributed to this economic decline.

Most of all, these lockdowns happened in Auckland. The city is the centre of trade for major corporations in the country, making the decline more significant than expected. 

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What impacts can you expect from this drop?

This economic plunge has had severe negative impacts, with the hospitality industry taking the hardest blow. On the other hand, the construction and real estate industry have seen a steady rise during the last three months. 

Aside from big businesses, let's take a look at how this will affect regular Kiwi families who just want to make a living amidst the pandemic.

Job opportunities are scarce

Businesses — either big or small — are closing everywhere. This limits job seekers in their employment opportunities. Employment these days doesn't necessarily translate to job security. If the market continues to crash, some companies will have to be forced to cut costs and let go of their employees.

Continue to save up when you can, and find more sources of income from a side job or small business.

Read: What Are The Best Performing KiwiSaver Funds As Of Q4 2020?

Prices of commodities to rise

The lack of international trade causes the prices of commodities to rise dramatically. With unstable employment and limited opportunities, it can be hard for families who live from paycheck-to-paycheck to cope with this economic plunge.

Investment returns to crash

With the market crash comes a crash with your investment returns and asset value too. If you don’t have enough disposable savings, you may lose money instead of earning it.

Be strategic with your investment choices. If you’re not very knowledgeable about market trends, talk to a professional financial advisor to know your best options. If you really want to invest, of course it’s always best to study the company before entrusting your money with them.

With the on-going recession, it’s best to find the best services and bank products for your family’s needs. Be it KiwiSaver, insurance, personal loan, mortgage, credit card, investment, or term deposits, we can help you score the best deals in just a few simple clicks.

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