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Economy

New Zealand GDP takes its biggest slide in three decades

First quarter contraction of 1.6% came from initial effects of the coronavirus

A container ship at Lyttelton Port, near Christchurch, New Zealand, on June 3. New Zealand, hailed globally for its success against the coronavirus, suffered economically from the pandemic.   © AP

WELLINGTON (Reuters) -- New Zealand's gross domestic product (GDP) fell 1.6% in the March quarter, the largest drop in 29 years and the first quarterly fall since the December 2010, as the initial effects of COVID-19 restrictions sapped economic activity.

The contraction was worse than forecasts of economists polled by Reuters who had expected the economy to contract 1.0% in the March quarter from the previous three month period.

"The 1.6% fall surpassed quarterly falls during the global financial crisis in the late 2000s," national accounts senior manager Paul Pascoe said.

It was the largest quarterly fall since the 2.4% decline in the March 1991 quarter.

Annual production-based GDP fell 0.2% compared to a 0.3% rise forecast in the Reuters poll. Economists have warned the data may not fully capture the extent of economic impact due to COIVD-19, as a lockdown to limit the spread of the coronavirus was only enforced by the end of the first quarter.

"With only one week of New Zealand's lockdown falling in Q1, we expect things to get much worse in Q2," said Ben Udy, economist at Capital Economics.

New Zealand is among a handful of countries that has emerged out of the coronavirus pandemic, largely due to its strict lockdown that forced almost everyone to stay at home and all but essential businesses to shut.

All restrictions, except border controls, were lifted last week, but the tough measures brought the economy to a standstill for weeks.

The New Zealand dollar had little reaction to the data, and was down 0.1% at $0.6449.

Service industries contributed the most to the drop in activity, while the construction industry and household consumption expenditure also fell.

The Reserve Bank of New Zealand (RBNZ) is widely expected to hold interest rates at its meeting on June 24, as it continues with its NZ$60 billion ($39 billion) quantitative easing (QE) programme to stimulate the economy.

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