Unemployment to average above 9 per cent next year with house prices down 11 per cent - economist forecasts

Thursday, 16 April 2020

It will take two years for the economy to really get moving again, Infometrics chief forecaster Gareth Kiernan believes.

Unemployment will average above 9 per cent next year and house prices will fall 11 per cent by the end of next year, economist Infometrics has forecast.

Even with 'massive government intervention', the economy faces a slow and patchy recovery from the coronavirus crisis, chief forecaster Gareth Kiernan said.

'It's clear that the New Zealand economy faces its toughest challenge in a nearly a century, with widespread job losses, business closures, falling house prices, and poorer households.'

Some scenarios modelled by the Treasury this week suggested economic activity could return to pre-pandemic levels by the middle of 2022, but Kiernan said the earliest Infometrics could see that happening was during the second half of 2023.

Finance Minister Grant Robertson has noted one of the Treasury's scenarios would see unemployment peak below 10 per cent, and drop back to 5 per cent next year.

*** Job hunting during the time of the Covid-19 pandemic

There were still businesses advertising jobs in NZ in the final week of March, but Seek says adverts on its site were down 76 per cent.

* Too-short 'failed lockdown' would be worse outcome for economy, bank warns**

That was if the country could make do with four weeks in a level 4 lockdown and four weeks at level 3, and the Government increased the size of its financial assistance package by about a further $37 billion, to $60b.

But Kiernan forecast it would take longer for the economy to reorganise and recover than the Treasury had assumed in its 'least pessimistic' models.

The probable closure of New Zealand's border for a year and the disappearance of international tourism alone would knock 5.2 per cent off the country's GDP, he said.

At best less than half of that loss could be plugged by Kiwis holidaying at home, he said.

Trade Minister David Parker hopes world trade will recover next year, but admits it's not a given.

'There is no way the economy can quickly and completely bounce back from the restrictions currently in place.'

The job losses announced to date were the tip of an iceberg, as many businesses would go broke over the coming months, he said.

'Households will be much more circumspect in their spending for a long time and businesses will also defer non-essential spending.

'Very low confidence levels mean that economic growth will be patchy, at best, throughout the rest of 2020 and 2021.'

ASB economist Mark Smith said it made more sense to describe the scenarios that could unfold, rather than try to forecast numbers that could have an 'extremely limited shelf life'.

Its 'central scenario' was for a U-shaped recovery that would involve 'a sizeable, but hopefully short-lived economic downturn' with moderate falls in house prices and a modest economic recovery from 2021, he said.

Trade Minister David Parker told Parliament's Epidemic Response select committee on Thursday that world trade could recover next year.

But a lot depended on the duration of the virus outbreak and the effectiveness of countries' responses, he said.

The World Trade Organisation was forecasting a 13 to 32 per cent drop in global trade this year, but Parker said New Zealand exports were only forecast to fall by about half that amount, thanks to its strength in agriculture.

Online recruitment company Seek said job advertisements on its website had fallen 76 per cent in New Zealand in the last week of March when compared to the prior year.

The massive drop is unlikely to surprise given that New Zealand employers spent most of that week in level 4 lockdown.

But Seek New Zealand general manager Janet Faulding said there was still some demand for workers even then, particularly in sectors such as primary industries and the community services sector.