Coronavirus: Kiwis' economic pain a big challenge for NZ banks, says RBNZ
Thursday, 16 April 2020
New Zealanders losing their jobs, and their houses, pose the biggest challenges for banks during the coronavirus crisis, says Reserve Bank Governor Adrian Orr.
Orr told the Epidemic Response Committee on Thursday that the country's banks and financial institutions were strong and in a position to be part of the solution
However, Kiwis becoming unemployed and unable to pay their mortgages posed a challenge.
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.
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At the end of last year, New Zealand's long-term housing loans totalled $203.4 billion, up from $188.9 billion a year earlier. Household financial liabilities grew to $236.4 billion from $221.6 billion.
Recovery would be more challenging than that of the global financial crisis, and there was no magical fix, Orr said.
'The most optimistic scenario is that we come out of this very very tight lockdown, and we remain out of this lockdown in varying levels of economic activity.'
Orr said the interventions put in place so far by the Reserve Bank were just the beginning. Negative interest rates were not off-the-table, but the bank has said it wouldn't come for 12 months.
That 12-month timeframe was to give the retail banks some certainty, and to prepare themselves for the possibility.
'We're doing the best out of a bad situation,' he says. New Zealand had not 'missed a trick' in terms of tackling the economic crisis.
Assistant Governor Christian Hawkesby said the Reserve Bank had settled on a forecast of a 35 per cent reduction in economic activity at level 4, and a 20 per cent reduction at level 3.
Finance Minister Grant Robertson told BusinessNZ on Wednesday that the Government would release guidance on Thursday on how businesses could operate 'under reduced alert levels and what measures need to be taken for them to do so'.
Construction, manufacturing, forestry and freighting industries had all been pushing to be able to either restart or operate more extensively.
Also appearing before the committee were former trade negotiator Charles Finny, Economic Development Minister Phil Twyford, Ministry of Foreign Affairs and Trade (MFAT) chief trade negotiator Vangelkis Vitalis, and NZ Trade and Enterprise chief executive Peter Chrisp.
Earlier, Trade and Export Growth Minister David Parker said that New Zealand's exports may not decline as much as forecasts for world goods.
The World Trade Organisation's Forecast, released on April 8, predicted world goods trade would fall by between 13 per cent and 32 per cent in 2020.
Australia and New Zealand's exports were forecast to fall by between 6.4 per cent and 15.6 per cent in 2020, because of the proportion of exports that were agriculture and processed food, Parker said.
That sector was expected to take a smaller hit than manufactured products and services, with international tourism, transport and education particularly hard hit.
New Zealand's overall goods exports, concentrated in the primary sector, were actually 2 per cent higher in March 2020 than in March 2019, he said. Dairy exports were up 7 per cent, meat exports 10 per cent and seafood exports 7 per cent, though forestry exports were down 36 per cent.
A 2021 recovery in global trade was predicted, but depended on the duration of the virus outbreak and the effectiveness of WTO members' policy responses, Parker said.
'Right now our focus is on keeping trade flowing and maintaining critical supply chains to ensure New Zealanders have access to the essential goods they need – including medicine and PPE - and keeping New Zealand goods flowing to our trading partners,' Parker said.
'Global cooperation – not national protectionism - is the best way to address this global challenge.'
Parker told the committee that the Government had been working with a number of world-leading New Zealand companies so they could try to retain their positions, for example marine jet maker Hamilton Jet, which competes against Rolls-Royce.
It had also provided help to Fisher & Paykel Healthcare to keep its exports flowing. Fisher & Paykel did not manufacture ventilators, but it produced a key component for ventilators used around the world.
Finny said he was worried for the future of New Zealand's $9 billion export industry, which could face failures if the Government did not allow it to restart operations next week.
He warned that the sector should not stop if the country had to move back to level four this winter or next.
Finny said trade was still going on around the world but it was getting problematic.
It would be good for New Zealand to keep working on new trade agreements, he said.
Twyford told the committee that NZTE was at the heart of the Covid-19 export response and in contact with 2,500 companies.
The rationale for essential businesses under level 4 had been what was essential to human survival, not an industry's economic value.
MFAT's Vitalis said one in four Kiwis relied on the export trade, a sector that tended to pay better wages and hire people faster.
'The export sector is such a vital part of the recovery,' he said.
MFAT would be working with exporters to break down barriers, and was looking at 'signature ready' free trade agreements.
There was a focus on trade with Thailand and Korea, and they were still holding out hope for a trade agreement with India.
Prime Minister Jacinda Ardern is set to announce on Monday whether the level 4 lockdown will come to end at midnight next Wednesday, or whether it will be extended.