Coronavirus: New Zealand economy won't look 'normal' for a long time

Tuesday, 14 April 2020

It would be wrong to expect New Zealand's economy to return to anything like normal for a very long time, economists say.

In a worst-case scenario, Treasury modelling released on Tuesday showed unemployment could reach 26 per cent. But Government support, and intervention in the economy, could reduce that to 9.5 per cent.

On the same day, NZME revealed it had cut 200 jobs, and the group that owns the franchise operator of New Zealand's Burger King restaurants was placed in receivership.

Near the end of Tuesday afternoon mobile phone operator 2Degrees revealed it was reducing its staff of 1200 by 10 per cent.

* Coronavirus: Burger King NZ owners in receivership, hopes of sale

* Coronavirus: Treasury models paint dire economic picture, mass unemployment**

Boss Mark Aue said 2Degrees, although an essential business, was 'already seeing revenue impacts'.

'Like all businesses, [we] are in an unprecedented situation with uncertainty on how long it will last.'

Finance Minister Grant Robertson says the Treasury's modelling suggests unemployment could be whittled back to 5 per cent next year.

BNZ head of research Stephen Toplis said even as the country moved out of level 4 lockdown, it would be important to recognise any progress would be 'glacial', and surrounded by deep uncertainty. There would be the potential for the occasional big step backwards.

'Even when we do reach a new steady state, that state might be quite different to the one we entered the battle against Covid-19 with.'

Treasury expects, with Government help, there could be a rebound in employment, back to 95 per cent by 2021 and the economy could grow to be worth $370 billion by 2024.

But Toplis said that might be too optimistic, even with more Government assistance.

ASB economists said it was possible the Reserve Bank could end up pouring even more money than initially expected into the economy – they said its quantitative easing programme could end up being worth $40b by May compared to the current $33b.

Finance Minister Grant Robertson said on Tuesday work was already 'well advanced' on providing further fiscal support to the economy, with a significant financial package tipped to be announced later this week.

Toplis said the primary focus of Government policy, at the moment, was to keep people employed through wage subsidies and business support.

'It is imperative, in the current environment, that money goes to where we can get our biggest bang for our buck.

'For example, we have no doubt there will be some businesses claiming the wage subsidy who could survive without it. Equally there will be some claiming the subsidy who have no chance of surviving longer term … there is not a bottomless pit of money to assist all.'

Westpac's chief economist warned that it would be better to stay in lockdown longer than risking a return to level 4.

'From a purely economic perspective, it is best to 'go early, go hard' and try to beat Covid-19 in a single push,' Dominick Stephens said.

Extending the lockdown would be very costly for the economy, but a 'failed lockdown' would worse.

In late March the bank forecast 200,000 jobs could be lost in New Zealand, with the rate of unemployment rising into the 'high single digits for the first time since the 1990s'.

The New Zealand Initiative said more economic activity could be allowed by applying a health and safety approach, meaning businesses could operate if they could comply with principles designed to minimise infection risk from workplace activities.

'With help from industry-specific groups, businesses would have responsibility for preparing and certifying their health and safety plans.'

Toplis said the nirvana outcome for New Zealand would be full eradication of Covid-19, resulting in complete freedom of movement domestically. 'But, let's be clear, even under this scenario the economy would continue to operate at a sub-optimal level for some time.'

The biggest enduring hit to activity would come by way of a slump in disposable incomes.

'Roughly 40 per cent of the current workforce is currently receiving Government wage subsidies and a significant number of those people have taken a 20 per cent wage cut for the privilege of doing so.'