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Our economists are talking recession with a capital R: 'It won't be a shallow one'

Our economists are talking recession with a capital R: 'It won't be a shallow one'

The country's economists have been scribbling away furiously on new economic forecasts in an effort to keep up with the rapidly changing and darkening outlook.

And the new pictures the economists are drawing of the immediate and indeed medium term future are far from pretty.

ANZ economists are expecting a recession "and it won't be a shallow one".

The Westpac economists say the decision by the Government at the weekend to effectively close New Zealand's borders has "made a severe recession inevitable".

And BNZ's head of research Stephen Toplis, who is advising to "batten down the hatches - this is going to be a very rough ride", says the three quarters to the end of September this year are likely to deliver New Zealand "one of the sharpest drops in activity in living memory".

In terms of putting some numbers to these dire prognostications, the economists are having a go, notwithstanding the constantly moving situation.

ANZ's economists say their updated forecasts (finalised only on Friday) "are already out of date".

"We now expect a recession (defined as two quarters of negative growth), but it looks like it will be significantly deeper than the 0.5% contraction we pencilled in for the first half of the year – double the size [IE 1%] is now looking possible based on the immediate hit to travel and tourism."

Westpac's economists say the travel restrictions alone are going to knock 2.4% off New Zealand GDP in the June quarter.

"Social distancing is going to disrupt economic activity within New Zealand and around the world. The result will be an unavoidable and dramatic drop in demand for the products produced by some businesses, while others will be caught up in the general downdraught."

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'A game changer'

BNZ's Toplis says the decision ("and the right one") by the Government to effectively close our borders was a game changer.

"This has shut down international travel completely. The impact on the tourism sector and airports alone will knock around 6.0% off GDP. There is an offset in a GDP sense as there will be no visitor outflows either. Net these off and GDP still falls at least 2.0% from this source alone."

The ANZ economists say it's all not looking good for the economy, frankly, "and things could get a lot worse".

"The two risks we are particularly worried about are a community outbreak on our own shores or a dramatic escalation in global financial market stresses, both of which could have devastating economic consequences, necessitating much larger fiscal and monetary responses. Front-footing these risks is the best approach policymakers can take. The risk of overstimulating the economy would seem pretty close to zero at this point." 

The Westpac economists say the hits to business revenue are going damage balance sheets.

'Preserving cash and surviving'

"Firms will concentrate on preserving cash and surviving, rather than expanding. The first example was Air New Zealand’s decision to axe 85% of its long-haul flight capacity and 30% of its domestic capacity. As businesses enter balance-sheet preservation mode, employment and investment will fall, compounding the economic downturn."

BNZ's Toplis says in addition to the impacts on the tourism sector and airports alone, other impacts could be added, including:

-   The impact on all major sporting and entertainment events, including the broadcasters

-   The film sector cans a number of productions

-   Any business that relies on the international mobility of its staff is highly compromised

-   Reduced investment activity through uncertainty

-   Reduced household spending

-   Inevitable job losses and reduced hours

"And all of this when the virus has not even taken hold in New Zealand, yet."

'Thankful for past fiscal austerity'

Toplis says we should be thankful to a string of past New Zealand governments (of all colours) who have maintained a degree of fiscal austerity.

"This has left the government with a balance sheet the envy of many with the capability to deploy its available resources in this crisis. That said, it remains imperative that the Government thinks long and hard before making its decisions and targets its spending very carefully. This could be a very long road and now is not the time to curtail your future options."

Kiwibank economists, who also see recession as "inevitable", expect to see some Large Scale Asset Purchases in New Zealand.

"The NZ Government has one of the strongest balance sheets in the world. Ironically, there isn’t enough bonds for the RBNZ to buy. But there could be, if the Government chooses to backstop struggling Kiwi business.

"Of the measures mentioned by the RBNZ, we believe the “term lending” option is best. Equipping banks with the necessary liquidity allows a targeted response to the affected businesses, to ensure they stay afloat. Of the RBNZ’s mentioned measures, term lending is the most targeted and done directly by the retail banks to affected businesses."

Support is important

ASB's chief economist Nick Tuffley said economically it is important to support not just the people affected by the virus but also to preserve their jobs for the recovery phase. 

"That means affected businesses need to receive enough support from various quarters that they get through the coming disruption intact.  The vast majority of businesses in NZ were in a sound position before the COVID-19 outbreak and will have good prospects again once behaviours eventually return to normal.

"The Government remains the most effective source of support and will announce a response package shortly.  We call on the Government to put in place measures that can support the wider economy at large, in addition to the targeted approach it has taken to date.  Measures are needed that will quickly get cash to the people and businesses that are going to feel financial pressure very shortly.

"In this environment of uncertainty and fear, it is important that people keep calm and make well thought out decisions."   

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They've changed their tune haven't they? Many countries have more debt but many of those also have better infrastructure and productivity levels.

Hopefully the government will be savvy enough to realise that returning spending power to consumers for the short to medium term (likely up to 18 months) will stabilise demand. If that cannot be maintained we will likely suffer a longer term impact.

Sounds like a great time to invest in infrastructure and productivity then no?

Remember an awful lot of non-DGMs saying - wont happen, cant happen.
well it is :

"Travel agency Flight Centre has implemented a four-day working week for its more than 1200 staff throughout its 140 New Zealand stores.
Staff will be required to take either annual leave or leave without pay to cover the one less day each week for the next two months."

This is equivalent to a 20% paycut (1 day out of 5 is now unpaid leave). Will households who have high debt service ratios face cashflow stress? The initial cuts to household spending will come in the form of discretionary spending (shopping, entertainment, dining, etc) which will have a knock on effect for rest of the economy.

This happened to me in 2008 in the wake of the mezzanine finance collapse and the GFC. Not nice for anyone.
It's certainly better than losing your job, but it really whacks you.

Some highly leveraged house owners will learn the same lesson that you did in GFC 2008. They have chosen not to learn the lessons from history which would have been a less painful way to learn.

Exactly right. And this will happen to many house speculators too. Time to rebalance the housing market and restore it to more healthy levels.

Air New Zealand could cut its workforce by as much as 3750, say the New Zealand Air Line Pilots' Association.
President Andrew Ridling said the company had told the union that based on current modelling, it will be looking to reduce employee headcount across the organisation by up to 30 per cent. The airline employs 12,500 staff.

''We understand this will not be a short term measure."

An Air New Zealand spokesman said the figure of up to 30 per cent was correct.

1) How many of these people have high debt service to income ratios?
2) How many of these people have negatively geared investment property portfolios?

David Hargreaves / David Chaston,

Time to restart this?

Other potential job losses

1) Tourism
The tourism industry directly and indirectly employs almost 400,000 people or just over 14 per cent of the work force, and Tourism Industry Aotearoa (TIA) chief executive Chris Roberts said we could see large scale job losses, with a return to previous international arrival levels taking as long as two years.


2) Exporters
i) logging

1) How many of these people have high debt service to income ratios?
2) How many of these people have negatively geared investment property portfolios?

....And these are all people who might potentially have to default on their mortgages. Be ready for significant decrease of house values within the next 6 months.

No one even believe me, after excitement of seeing this RNA adaptation ability.. the soon Covid20-22 variants will pop up. Their intermediary protein attachment adaptation, will be on another yet.. biological creature that human consume it..The one bullet approach of inhibitors, won't work with the next one going to popup. All current worldwide govt effort so far, just to slow down the progress, this will be annual cyclic. The 14 days self managed isolation works just to slow down the spread. But when you're young past 14-24 days of isolation.. can be tested more than 10 times. It can still yield a false negative result, thus we got no option other than release those youngster back into the community lives... then tick tick tick...

It's possible, but then life expectancy through human intervention in the past few decades has significantly changed. Open heart surgery was not an option available for my husband's parents, yet my husband has had it to replace a faulty value. This virus indeed looks to be pretty nasty, but as long as we cooperate internationally on R&D, I'm hopeful humanity will get on top of it.

Where are you from? That is truly bizarre grammar almost like your initial post was in another language and you auto google translated it?

Damned if you do and very damned if you don't! It's going to be a global recession haven't you heard. See it's not just us: RBNZ Slashes Rates in Emergency Move to Support Economy

Orr's team followed my predictions on this website, the next one? month of May.. the last one to be slashed.. either by 25 to make it to 0, or if they shy to follow me then going to do the unusual..15 basis reduction. I'm being cheeky to make the cargo truck driver get enticement to break any travel lock down rules here. This is not going to be an incentives.. it's for emergency life support assistance, nothing more. But yip, all tax payers will bear the burden.. except, those giggling away to the banks sold RE, no CGT :D - bravo to you !


Economists have just disqualified themselves forever from all economic forecasting. We all now know that they have got no more idea of how the economy is going to behave in the future than you or I......except that they are paid megabucks for not knowing.
If you look at my posts a few weeks ago I seemed to be the only one panicking, while the bank economists were still sniffily poo-pooing the possibility of any major long term crisis.


Indeed, they are worthless.
Throw in the financial journalists too (not those on this website!), like Church and Liam 'A recession is highly unlikely' Dann.
They are all infested by vested interest and bias.


The only function of economic forecasting is to make astrology look respectable.

John Kenneth Galbraith

Bank economists are basically just fancy salespeople. Even if they knew the future, they still need to lend, so they will always tell you its a good time to borrow if they can.


I have it on very good authority that our housing market is Armourplated and that New Zealand is duffrunt.

by Yvil | 18th Feb 20, 10:22am
Thanks for the link Printer8, it was interesting reading posts from NZDan, rastus, Fritz, Courtjester and others ridiculing Westpac for their 7% house price growth forecast… which is spot on

I've been saying confidently for a long time that a crisis would hit before 2022, and take our economy down.
I didn't know it would be a virus, nor did I think it would be quite this soon.
But I called it by 2022. I was scoffed at by the usual suspects.
I think Mike Kirk was making a similar call.

I’ve been calling bottom of current cycle in 2021/22 :) And that when a recession did hit that it would be for reasons totally unrelated to the predictions of the DGMs on this site. Blind squirrels that will try take credit for finding a nut by pure chance.

Fritz, The Guru, he should be a multi millionaire based on his ESP and wonderful foresight to read the markets. BUT instead he is barely getting started as an FHB

You are a nasty man.
And surprised you are still allowed to post here after your RACIST comment the other day.
Have a nice night RACIST

What an idiot you are. I respond tongue in cheek to your slurs and you start crying and throwing your toys about name calling. You have a real nerve to call me racist mate after the comments you made about kiwi accents! AND if you call for a recession/depression why are you so surprised about people who might lose their jobs duh.

Wow .. you are really a sad case Fritz ; good at dishing it out but cannot take it yourself. Feel a bit sorry for you.

You can eat those bricks, while I am happily prescribed proper medication to those in needs. Keep on going flaunted those RE wealth, citizens health seems less concerning, until you finally cave in.. and need to visit one of us (yip, plenty of us still renting).

Hi Fritz,

the big problem central banks ad governments have is that they have no new ideas and no ammo left.
All informed observers have been saying for 11 years that extend and pretend had to have a reckoning.
Now we are being told by Trump's mate at Citi group that there is (and will be) NO financial crisis.
However, a credit crisis is already upon us. Corporate debt will implode the system, plus bond defaults.
Since 1974, essentially the top 20% has been sucking up more and more wealth and productive capacity form rest of people in OECD and giving them only debt in return.
Only by reversing that and redistributing the money can non debt funded recovery be achieved.
Of course elite do not like this idea.
We see microcosm of this in landlords maintaining their great value to society whilst taking out 40% of new stock in Auckland.
This central bank action is failing already and trying to get people to spend money when they are worried is not going to work either.
The fact is we are heading for stagnation, just like 1971-79.
Meanwhile Russia is scheming revenge on US shale and Saudi Arabia thinks $25 a barrel is fine to break rest of providers.
US shale debt is going to pull system down. Look at all bond holders selling out already ....

The corporate debt is truely scary. How many companies took on huge debts to fund share buybacks ... and where are the price of those shares heading? The debt isn't going anywhere.

It's about to get ugly

But did you call it taking the global economy down?

Phew, lucky, lucky. You were saved by an unknown 1 in a 100 year event that no one was predicting six months ago.
Desperate son, if you have to rely on an unpredictable and low risk event to be proved correct. :)

Except it wasn't unknown when Westpac made their claim of 10% by the middle of this year only 4 weeks ago.

Despite your ridiculing their 7% estimate it was spot on. I suggest that the extent and implications of the virus were not known at the time of their 10% outlook and like every Kiwi they have adjusted their outlook accordingly.
You are sounding desperate to save a reputation.

Except I never ridiculed their claim as being false, I ridiculed the fact that it was filled with exit clauses after the fact.

by Nzdan | 18th Feb 20, 1:57pm
And the one they got right was also filled with "exit clauses".

My comment above was to bait Yvil, who I'm sure won't be far behind you.


Not really a virus was an obvious contender and I mentioned it before this even started. A war was far more likely but the virus beat it to the punch. One could argue that the chances of a war have now increased also.


Good article. But ANZ are wearing rose tinted glasses to think GDP will 'only' shrink by 1% in the first half of 2020.

Can you remind me what your predictions were for 2019? I have this memory that you were TOTALLY wrong.

That's what's cracked me up so often in the last 3 years with financial commentators,
"were at record highs (debt, sales, what ever, take your pick) everything is fine as long as there are no shocks" Unfortunately as some of us understand, statistically shocks are always going to occur, unknown shocks at that, otherwise they would qualify as shocks.

And on average there have been major economic shocks every 8-10 years. So we were well overdue.
It's a bit ironic, the property spruikers love their cycles (property prices double every 10 years!) but somehow turned a blind eye to this economic reality.

Banks advising asset purchases to help struggling businesses. Banks aren't here to help.


And the winner is .................. THE BANKING SECTOR !!!!! .

With the OCR at 0,25% and your Mortgage at 4,25% you are being screwed over at a spectacular rate.

Name any Business on the planet , other than a New Zealand Bank that has a Gross profit margin of 1,600 % ?

And thats on its cheapest lending product .............. unsecured lending ( credit cards and personal loans ) is still at around 16 to 20% per annum

Now, now boatie.. I just about to say that... soon they have to show/put up their social face... shed some of their earliest profit into the cause.
But as we both typing comments now, damn they'll hunt us... for reminding people who will be the winner at the end of these DGM events.

NIM will likely be lower as rates reduce so lending will be far less profitable. That's why major banks have had 25-30% wiped off their value since this started. If you want to buy bank shares buy one with a diversified portfolio of finance products.

Oh dear! We seem to have arrived. I think this is a crisis of confidence in our financial worlds with the final straw being a half-arsed virus talked up by the media & swallowed hook line & sinker by our paranoid politicians. When the virus gets to a million infections you can wake me up. Until then, it looks like we're going to have to live with the price of bullshit. The first era of globalization has ended. But that's about the only upside.


100% this.

35,000 deaths in the USA since October 1 2019 from the flu. 57 deaths from Coronavirus.

Call me a cynic, but the Larry Silverstein comment "pull it" comes to mind.

Flu has a vaccine plonker

Google this Masher brain: DNA viruses vs RNA viruses - then ask to your local Lab/Uni research.. that fiddle with it. See their reactions, after seeing this little creature survival mechanism.

With the current exponential trajectory a million infected is 30 days from now. Enjoy your nap.

I recommend you familiarise youself with how exponential growth works. Just because the numbers are low now, it doesn't mean the risk isn't huge. If you extrapolate the infections rates it will get out of control unless we proactively slow the rate of spread

Cheaper lending only helps those who have the income to pay back the loan. The more people's earning capacity is weakened by job loses, the less they can support debt. So, what will support already inflated property prices? Not much.

Immigration still reported high, Covid19 refugees apparently got heaps of cash to help armor plating more on the bubble. Rumour has it, that the steady number up means sustain the current pricing - Well done NZ by keeping the GDP up.

I expect mortgage holidays as per Italy and Britain should we be unable to arrest the spread (i.e., flatten the curve and therefore keep schools in session and the majority of people in work).

As Buffet says..."you only see who's swimming naked when the tide goes out". Well were gonna see real soon.

No debt, good multiple incomes, and vulture fund on standby to pick the carcass of those naracistic sociopaths. A good supply of popcorn on standby in between times.

Election is in September, I guess at this rate the COAL is being seen as more proacative and having a better PR campaign than Soymon's team

For the Pollyanna brigade on here: dont worry it’s a temporary inconvenience and all the interest rate cuts will send buyers rushing to buy. Drivel. Fear drives market now.

Not that I told you so. But I did
And bank interest rate cuts today drove nz50 down 4%
Fed cuts will also achieve nil.
You can’t make people borrow more
Economists told banks it would not work

But you forgot, how long ago? Orr's & team suggest to spend, spend, spend after lowering it down.. nothing significant that much until about 2-3 months later (yip, not the production economy but RE flurry), now major points down again to be followed soon by month of May another down - salvage, salvage, salvage, after May another down - pull up, pull up, pull up.. after that, hopefully the plane will be downed by Captain 'Sully'.. the message will be simply: brace for impact - brace, brace, brace.. - The thing is RBNZ is being told silently by the Banks, And Banks will never ever listed to any independent Economist, they'll always use their paid economist for obvious reasons.

It's no longer about spending more it's about being less negatively-geared/f***** than you would be otherwise when re-fix time comes around. This won't undo/avoid the accident it'll just make the damage less.

This is a reverse-bill-of-materials moment for the economy. A BOM is usually intended to show what one needs to Build something, and often a BOM is largely composed of many 'kits' - sub-assemblies, and that recursion can go many layers down to arrive at the ultimate content. That's what makes such a nonsense of trying to, for example, derive a 'carbon footprint' for a finished product of any complexity - too many ultimate components and thus far too many assumptions needed.

A dis-assembling economy. OTOH, crucially has no BOM's which specify the componentry which will ultimately be affected. So the unravelling of entire sectors (events, festivals, tourism) is inherently unable to be predicted in the precision needed to direct remediable action or arrange substitutions.

That's what makes this whole thing so not-amenable to ordinary economic modelling. Because BOM's only work during Assembly, not for Demolition. Hence the headless-chicken circling seen from prognosticators of all stripes, and from not a few commenters right here on Interest.....

As a thought experiment, imagine an AirNZ engineer, a barista, and an RE salesbot (sorry, Personage). The first has two mortgages, two cars on HP, an overdraft and significant CC debt, but owns two residential rentals and is now jobless. The second has zero mortgage and moderate CC debt, but a student loan and a small overdraft - little to no other assets beyond a motorscooter, and her boss has just announced a 3-day week. The third has a thumping mortgage, no rentals, a large Amex balance, two leased vehicles and a few other toys/assets, and the firm has just cut the commission rate by 50%. Kindly predict the economic effects of this small sample's situation. Then multiply that by a million.....

And here's the real kicker. It's far, far easier to Demolish than to Build.....

Very thought-provoking explanation and exercise. I think the barista is in the best position - as a guess, the government will suspend SL payments.

Agree. The Govt may also extend income support to compensate for loss of wages.
For the other two, even if mortgage repayments are suspended for now, they won't be written off. Will some interest waiver be given ? Not sure. Banks are not that generous.
The less debt in these tough times, the better.

How deep & how long? before it can flow into depression, then the same questions. Why though? of such possible DGM prediction, always ended up being ridiculed.. the past 5 years. Now, no one laughing at you.

If karate used defend honor, defend life, karate mean something. If karate used defend plastic metal trophy, karate no mean nothing. We make sacred pact. I promise teach karate to you, you promise learn. I say, you do, no questions.

Anyone checked out the fear and greed index lately?

Was watching last week - stopped looking when it hit 70 - much higher than GFC. Then went to check how much toilet paper I had.

Just an incredible amount of fear out there.

Kiwisaver providers can help by waiving fees till the Corona crisis blows over. Will they ?

Quite good, measured comments by the lot of them.


House prices will hold up ok in most places.
The biggest worry is those who rely on income from the so-called productive Sector other than housing!
Those in KiwiSaver and the retired or near retired are the ones that are going to be skinned and not the house owners!
There will be consequences for all but NZ have a good government waiting in the wings if things don’t go well for Cindy

House prices will collapse, once people will be unable to service their mortgages after having lost their jobs. Be ready for a significant flow of mortgagee sales. Speculators (and sadly, recent house owners too) will be monumentally shafted.

I give up. I entered the job market in the wake of the GFC, saved and saved and saved in the years since. Moved overseas and put close to the equivalent of my entire old NZ salary into savings every month, planned to come back this year with close to quarter of a million dollars as a deposit for a place. But with median house prices going up the average income on a near monthly basis, reserve banks now pouring bloody tankers of fuel on the fire to keep assets inflated and now impending mass layoffs it just looks completely impossible to ever get any sense of stability. And relatively speaking, I'm one of the luckier ones...

Assuming you are a potential owner occupier, and haven't yet bought, your opportunities will come. Many overleveraged households will likely go into financial stress if the economic slowdown is prolonged.

Would be owner-occupier yes. I'm simply not convinced market forces will ever come to bear on house prices at this point, but happy to be proven wrong. Rates will go to zero, then negative, then straight up buying mortgages from the banks before any reductions will be allowed to happen. Existing owners will pile into rentals at an even greater rate given the stock market volatility with their inflated equity, and almost everyone who didn't get in at least 5-10 years ago will be permanent serfs. I can't see any other possibility while successive governments are unwilling to step in on the side of affordable housing.

Housing is very affordable and has been if you are prepared to work for it
Owning a home has never been a right in Nz,

Our history of massive state house building programmes and government-backed low interest mortgages would suggest otherwise. But yes, good point, there must be no link between prices exploding for 40 years, stagnant real incomes and affordability. That's why NZ hasn't been consistently ranked among the least affordable countries in the world for housing.

That's a total lie and you know it. I am in a similar position as the previous poster, but in the last few years houses have been going up in the region I want to buy (the cheapest city in the country where it's possible to do the job I spent years getting qualifications for, and for which I earn a very good salary) by more than my entire take home pay. I am prepared to work for it. I am prepared to save. I don't own a car, drink coffee, buy new clothes, go out - but I can't save more than I earn. And before you say 'work three jobs blah blah blah' that might be possible if those are retail jobs, but uts not possible when you're in a salaried position that frequently requires weekend and evening work at short notice.

Just be aware that the carnage we've witnessed in the share markets around the world could soon transfer into the NZ housing market. It could fall 50% in my opinion and if it does, keep working towards your deposit so you're ready to buy.

I totally agree. 50% slump in the housing market is something that I can see happening quite easily. Hopefully, the RBNZ and Government will manage this slump to a less catastrophic level.

Would you agree that our fall will come only after falls start to appear overseas? e.g. the USA? Or is our tourism dependency big enough that we would fall earlier.
Are there any regions internationally with a similar level of property obsession to us we could use as a guide?

Classic half arsed sanctimonious comment from a boomer who’s never experienced a student loan or a standard price to income of 10 x.

So the question is with the mass layoffs coming to town near you and the likely increase in unemployment will there be a need for those people on the 250,000 seasonal/temporary work visas? Temporary visa holders won't be eligible for the dole so what happens now do they all head back overseas?


Or they riot in the streets looting the supermarkets for food.

Well we can't let them starve. I've often thought globalism is fine until you hit a crisis. Barely employed migrants is a problem that many European countries have been dealing with over the last decade. Not so bad if most of the native people are employed but what happens during times of high unemployment? We may be about to find out.

I am staring down the barrel of the opposite problem which is having too much work to do. As a general IT guy a lot of my work is getting people online and able to be productive and ensuring the systems stay working. Companies will be ramping up their ability to work in dispersed locations and making their systems more robust. Suddenly I find myself in the front line of the crisis just when I wanted to wind down.

Good on you. There will always be good job opportunities in ICT, especially if you are smart enough to keep yourself constantly up-to-date.