That light isn't the one at the end of the tunnel, bank economists warn

Thursday, 28 May 2020

Business confidence has picked up a smidgen, but consumers shouldn't get ahead of the curve, banks warn.

Life after Covid-19 may be returning to something closer to normality and business confidence picking up slightly, but there is a long, hard road ahead, bank economists are warning.

ASB said in a quarterly economist forecast published on Friday that while the health crisis might be easing, there was a risk of a second wave of virus cases in Europe and 'the economic crisis is only just starting'.

The bank said there was some possibility economic activity could recover faster than it had 'pencilled in', if New Zealand could remove alert restrictions quickly while avoiding a fresh outbreak.

But at the moment, ASB is forecasting a drop in GDP of 6 per cent this year, with a bounce back in the second half of the year failing to come close to erasing an expected 18 per cent drop in activity in the six months to June.

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ASB is tipping house prices to fall 6.6 per cent in the year to March.

ASB was confident New Zealand goods exports would hold up well over the remainder of the year.

But it forecast unemployment would peak at 9.3 per cent in the September quarter and house prices would fall 6.6 per cent over the year to March.

'Job security will be the defining feature of housing demand going forward,' it said.

The country's largest bank, ANZ, said on Thursday that there were some signs of a small pick up in business confidence during May.

A net 42 per cent of respondents to its May business confidence survey expected conditions to worsen over the year ahead, which was an improvement on a net negative 46 per cent in its preliminary data, which was derived from responses received earlier in the month.

But chief economist Sharon Zollner described the improvement as 'painfully slow'.

'While the outright disruption is easing, the recession is just getting started.

'Expected profitability, investment and employment intentions, lifted but are all still deeply negative.'

Zollner said it would be a long way back to normality.

'Businesses are really hurting.

'The economy needs to reshape to face the new reality, and in particular, the loss of international tourists – completely for now, but likely still at a hugely significant scale for years, even if a trans-Tasman bubble becomes a reality,' she said.