ASB warns no certainty as to shape of recovery
Monday, 20 April 2020
ASB says there could be a quick 'V' shaped recovery from the coronavirus pandemic, or economic activity could simply settle for a long time at a lower level, creating an 'L'-shaped end to the crisis.
Some economists have now thrown-in the idea of a 'W' shaped recovery, where the economy rebounded quickly, only to rapidly fall into another malaise, ASB economists led by chief economist Nick Tuffley said in a report.
But ASB said its most-likely scenario was for a 'U' shaped recovery which could see New Zealand's inflation-adjusted GDP begin to recover in the second half of this year, but not return to its pre-Covid-19 level until towards the end of 2022.
In that situation, unemployment would approach 9 per cent this year, before easing back to 6 per cent by the end of 2023, it forecast.
The bank's central scenario assumes the level-4 lockdown will be 'gradually relaxed a week or so after April 23', with a further gradual relaxation in alert levels over the next few months, it said.
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Its worst case scenario was for regular flare-ups of the virus around the world and a resurgence of cases in New Zealand that would see the level 4 lockdown extended beyond May in some regions.
That could result in unemployment being at 9 per cent at the end of 2022 and staying stubbornly high thereafter, it said.
One thing that appeared certain was a high level of uncertainty, the report said.
'There are … all sorts of permutations based off whether the virus truly gets eliminated in New Zealand or merely contained, how quickly New Zealand eases back through its Covid levels, how resilient businesses are to the disruption of lockdown [and] the extent of the hit the global economy takes.
'Over the longer term, factors such as whether there is any lasting immunity against Covid-19 and any future mutations will matter – will it actually be safe to interact once more or will distancing become a long-term fact of life?'
Answers to some of those questions might not be known for years, it said.
'The encouraging thing to bear in mind is the adaptability of humankind and the sheer amount of global intellectual power that will be focused on overcoming the challenges that Covid-19 has thrown up.'
But ASB suggested that the rebound in financial markets might have got ahead of itself.
'We're wary that markets' recent optimism is going to be tested as economic data for April begins to reveal just how much damage Covid-19 disruptions have done to the global economy.'
Credit ratings agency S&P warned that jobs lost during the coronavirus crisis in the Asia-Pacific region as a whole could be hard to win back, because of the sectors being affected.
S&P said it had looked at how long it took, on average, for employment levels to normalise after job losses.
'What we find is that sharp spikes in unemployment tend to only repair themselves in slow drifts,' its Melbourne-based analyst Shaun Roache said.
Given the 'special circumstances' of this downturn, the repair could take even longer than usual, he said.
'The rise in unemployment could be larger now than in previous cycles because the downturn is much larger and is concentrated in the services sector.'