The economy may have avoided a double-dip recession to start the year due to strong domestic spending and a surging construction sector.

A strong  man welder in brown uniform, a construction helmet and welders leathers, grinder metal an angle grinder  at the construction site, orange sparks fly to the sidesStrong activity in the construction sector is continuing to provide a strong boost to the economy. Photo: 123RF


Gross Domestic Product (GDP) figures for the three months to March are due on Thursday, and the consensus among economists is that the economy grew by about 0.7 percent, after contracting by 1 percent in the December quarter.

This puts activity above earlier predictions, which suggested the economy could slip back into contraction over the quarter and into another recession because of the absence of international tourists spending freely during the peak summer season.

Westpac acting chief economist Michael Gordon said pockets of the economy that were oriented towards local demand had largely offset the impact of the closed border.

This included retail spending, the construction and manufacturing sector, and the overheated housing market, he said.

“Previously, we did have a forecast of a flat result for March quarter GDP … our flat call was really reflecting the idea it could go one way or another.

“It was really the question of the balance between the impact of losing overseas visitors over the summer period, versus what was happening in terms of local demand,” Gordon said.

“It looks like it’s really tipped in favour of the latter.”

Gordon said he expected to see signs of weakness in the March data relating to natural resources.

“We’ve seen a drop in the oil and gas extraction. We’ve also seen in the electricity space there’s been a drop in generation and also there’s been greater reliance on more expensive forms of generation, notably coal, because the hydro lakes have been low.”

No captionThere has been a drop in electricity generation because hydro lakes are low, which may put pressure on the economy, an economist says. (file pic) Photo: 123RF


When the the March GDP numbers come out they will already be a relic of the past, and attention will turn to whether the economy can maintain pace.

Gordon said he suspected there was still room for growth in the coming quarters, but it would not be easy.

“There’s still some way to go in terms of getting back to where we think we would have been had Covid-19 not happened. Without that we expected to see trend growth of maybe about 3 percent over the last year and a bit.”

He said the economy was not keeping up with population growth or the usual rate of productivity.

“The real kicker to get things going would really be around reopening the border more widely to visitors from the northern hemisphere in particular.”

Without that the economy is having to get by with a bit of substitution such as spending on domestic tourism or people investing in their homes but that is not a perfect substitute, Gordon said.