Primary sector to provide support for the economy through COVID-19 downturn

The rapid deterioration in economic conditions across New Zealand, and expectations for a long, slow, recovery, signal a tough few years for the economy. But New Zealand’s strong primary sector, and position as a food exporter, is likely to provide a solid foundation for regional New Zealand.

Still trading

Provisional data from StatsNZ indicates that New Zealand shipped over $10.7b worth of exports overseas in February and March 2020. This export total was up 2.4% from the same period in 2019, highlighting sustained trade activity, even as the global economy has softened and lockdowns have emerged across advanced economies (see Chart 1).

Initial trading activity in February and early March was lower than a year earlier, with constraints on exports into China limiting trade. But since mid-March, New Zealand export values have headed back into growth territory, even as COVID-19 has spread around the world.

Limitations on China trade holds back trade activity

The shutdown of China in early 2020 hampered trade with New Zealand’s largest trading partner. Over the two months to March 2020, provisional trade data shows that the value of exports to China remained 10% below 2019 levels for the same period (see Chart 2).

Despite food-based exports begin given priority, difficulties clearing goods through Chinese borders was a constraint on trade. Demand in China for key New Zealand exports, such as logs, forestry products, and meat, remains lower than a year earlier. Over the two months to March 2020, forestry exports were 51% lower than over the same period in 2019, and meat exports were down 29%. Other exports, like seafood, also remain in a softer trade position.

However, dairy exports – our largest non-tourism export – were up 26% over the same two-month period compared to 2019. China’s resumption in economic activity is likely to buoy exports, although the general trading picture will remain weaker as global economic activity stays subdued, thereby limiting Chinese economic growth as well.

Global exports lifted by dairy, meat trade

Globally, New Zealand’s trade position remains solid. The 2.4% rise in export values over the two months to March shows that the world is still buying New Zealand products. 

The strength of dairy exports continues to show through, with export values rising 10% over the two months to March 2020 compared to 2019 (see Chart 3).

Meat exports have shown promise too, with a 4.2% rise in exports values from the same period in 2019. With meat exports to China still soft, this slight growth in meat exports globally shows that New Zealand’s meat industry has been able to pivot its exports into other markets.

Forestry exports remain in a much more vulnerable position, with a 31%pa decline in export values over the two-month period.

The fall in the exchange rate this year has helped support New Zealand exports. The New Zealand dollar has been trading at around US60c recently, compared to US66c in early January.

Regional New Zealand will support export activity

Regardless of the COVID-19 pandemic, the world still needs to eat. New Zealand’s export focus on food and beverages positions us as well as possible to weather the global economic downturn. Although export values are likely to dip as conditions deteriorate further, the food-based nature of our good exports provides more of a cushion than many other countries will experience with their industrial commodity or manufactured exports.

This economic foundation will benefit many of New Zealand’s regional areas, with 11 of New Zealand’s 16 regions having 10% or more of the local workforce employed in the broader primary sector. The concentration is even more pronounced in some areas. Waimate, for example, has 41% of its local workers employed in the agriculture, forestry, and fishing industry.

The primary sector is expected to come under less pressure than other major industries. This relative strength could lead to a two-speed economy over the next few years, with provincial areas with a primary sector focus showing greater resilience throughout the economic downturn.

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