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BNZ's head of research Stephen Toplis says economic activity will not return to pre-crisis levels till 2023, while unemployment might not get back below 5% before 2025

BNZ's head of research Stephen Toplis says economic activity will not return to pre-crisis levels till 2023, while unemployment might not get back below 5% before 2025

BNZ's head of research Stephen Toplis is warning that economic activity won't return to pre-crisis levels till some time in 2023, while unemployment might not get back below 5% before 2025.

In the latest BNZ Markets Outlook Toplis says he's concerned about the view, held by many, that the country will simply have a sharp economic correction in the second quarter of this year and that there will be an equally large bounce very soon thereafter returning things to normal.

"It is true we will get a huge drop followed by a significant hike. Equally, the bigger the fall, the bigger the bounce. This is why, even with huge variation in the quarterly forecasts of commentators, the deviation in overall growth expectations is not so large.

"But, even with the bounce, whenever that may be, things will not return to normal for a very long time.

"We believe it will not be until sometime in 2023 that activity will return to pre-crisis levels, at the very earliest. And we would be surprised if the unemployment rate fell back below 5.0% before 2025."

Toplis says the BNZ economists are continuing to increase their expectations of the size of the hit the New Zealand economy is going to face "from the pestilence we are currently experiencing".

"We are not alone. We are now witnessing forecasts for Q2 GDP ranging between -10% and -33%. Never before have we seen such a marked spread in expectations. And, yet, in reality, the irony of this huge spread is that it actually shows there is a very strong consensus view. Namely: the hit will be unprecedented; it will be focused on Q2; there will be a bounce; but no-one really has a clue as to the magnitude or duration of the shock.

"A simple, back of the envelope, analysis shows that a double-digit percentage hit to activity in Q2 is almost a given. If we assume a third of those currently employed remain working in essential services, another third work from home and a third can’t do anything (think travel, tourism, hospitality, and retail) then, if nothing changes for the whole of the June quarter, economic activity would drop a third. If we assume the lockdown lasts for just 28 days, and things return quickly to normal, then the decline in economic activity would be 10%. This, in a nutshell, would be the best case scenario."

However, Toplis says given that there may statistically be difficulty even measuring the size of the ups and downs the BNZ economics team are not spending a lot of time trying to fine tune their GDP forecasts.

"We are far more concerned with the spread of the illness, the likely spike in the unemployment rate to around 10%, and the ability for businesses to survive this shock. And, possibly of even greater importance, is trying to understand what the world will look like when we finally claw our way out of this mess."

Toplis says common sense dictates that significant parts of the economy simply cannot bounce back quickly, and others will face structural issues that will transform them forever.

"There are a host of issues we could confront here but we note the following abbreviated list for expediency:

  • International travel will recover only very slowly. Even if New Zealand wins the battle against Covid-19, it is unlikely the rest of the world will do so any time soon. Realistically, the threat of infection is likely to stay in place for up to two years. This will be a major impediment to travel for an extended period of time.
  • As New Zealand comes out of its Level 4 lockdown, there are likely to remain hotspots of disease. This will remain travel limiting.
  • The massive increase in those working from home will change the world. Many of us talked about working offsite but never really embraced the concept. Now we know that it can be done, the need for office space could well diminish. Furthermore, we’ve all found out that video conferencing can work, which may permanently reduce the need for travel.
  • Many hospitality businesses operate on the border of solvency at the best of times. Many will close forever given the current shock.
  • Employment lags economic activity. As the economy bounces, employment will respond more slowly. In the first instance, firms will be reluctant to fully re-staff until such time that there is certainty that the virus will not re-emerge. Additionally, there will be those who realise they can produce the same output with lower staff numbers.
  • With the unemployment rate higher for longer, discretionary spending will take a disproportionate hit. Even if employment does pick up sharply, consumer net debt levels will have risen as people borrowed to see through a time of hardship, or ran down their savings or built up debt through deferring their mortgages.
  • Fallen asset prices (equities in the first instance but housing in the not-too-distant future) will adversely impact spending.
  • Lower population growth will result in lower GDP growth.
  • Uncertainty, in and of itself, defers investment activity.
  • And, last but not least, there is no free lunch. The Government is spending up a storm. Its debt levels will rise explosively. Ultimately, someone will have to pay for this via increased taxation and/or heightened fiscal austerity," Toplis says.

"Trying to get our heads around this is of greater priority than working out exactly where we are now."

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A V shaped recovery will be dependent on two things 1. construction returning at the same levels as prior to this epidemic and
2. tourists coming back in numbers
Both assumptions seem flawed.

NZ should never be relying on tourists for our economy. It isn't sustainable IMO due to global warming, and the risk of this sort of thing, which is spread by travellers into NZ. Quarntine periods maybe the future for travel. We do it for many animals already due to diseases.

R Kerr hit the head of his (finger) nail yesterday. Said when the rest of the world saw us as a disease free safe area to visit they would flock here again.

Unfortunately he didn't think that thru. For the flocking to occur ( cue Charlie Harper) they also have to come from a disease free area as well.


I really like Toplis. Long in the shadow of the Alexander, but in my opinion a much better economist.
Superb piece. Covers all bases really well, with appropriate caveats.

Yes. Quite objective and makes the necessary associations of impacts on consumer spending. Lacks the animal spirits and smary tone of Alexander.

Yup, he's hit a lot of key points that many have been raising in the comments here.

This won't be a 2 month blip. The impact will be felt for years.


There was never going to be a V recovery out of this.

L into a decade of stagnation under debt and high taxation.

No way to save money for a return without ludicrous risk.



It's ok guys, we just need more debt. It will solve all our problems!

LOL. Never get tired of seeing that.


Good list. Office and hospo space is likely to prove a misallocation of capital to some extent, so any 'recovery' may need to consider fast re-purposing of underutilized or plain unlettable spaces. We may have ourselves a quick and dirty answer to the fabled Housing Crisis.

Another small suggestion. Given that valuations of assets depend on two core judgements: future cashflow and discount rate, a realistic appraisal and a wide re-valuation downwards seems to be baked in. This is gonna play havoc with TLA rating bases, for starters, as it would alter the balance between commercial and residential tax basis numbers.

It's gonna be Fun for Noddy......

Convert some of that office space into cheap apartments, you reckon? Interesting idea.

I think they (BNZ economists) could be pretty close considering the flames are still getting higher. Expect the best but plan for the worst. It's what we used to call a shambles. There'll be blood everywhere.

It seems to me the rate at which a recovery is staged depends on how much pressure consumers are put under.

As South Korea shows once you have extensive testing life can return to a fairly normal state rapidly. Ain't nothing to it but to do it!

SK has to trade with someone, using global supply lines, and someone has to be consuming.

This is a lot more systemic than a glib 'she'll be right'.

You can't just "do what South Korea did". They were prepared and ready for a pandemic like this. They had the infrastructure and people ready to go. Few other countries are equipped to do anything similar.

So we tell India (or any other country that does not have a culture, system, structure, supply chain or resources) to "do what South Korea did"? How does that work at this stage in the pandemic? Time machine?

Here's a thought. Many firms now working from home will adjust and get used to it. They may realise that they have been wasting huge sums on large offices. So they will try and negotiate an exit to their lease, and maintain the working from home environment with maybe a small "hub" office you travel to as needed. At that point 1) commercial landlords and the commercial construction industry are in a bind and 2) having a nice personal home and residence becomes much more important

Yes, all of a sudden that spare bedroom/study becomes a must have.

Nocents - so will us workers be expected to bear the cost of providing our own workspaces now - ie turn our homes into home offices, pick up costs such as electricity use during the working day, tea and coffees, office furniture, internet connection etc?

Worth the trade off not to have to commute and waste money on transport I reckon. No brainer.

Give me that over commuting any day

As someone who has up until recently commuted 4 - 5 hours per day, this is a welcome change. I work for a great employer, but they were still hesitant in allowing me to take my docking station home the week before lock down. This is despite my new role lending itself 100% to remote phone/laptop/no customer facing etc. The biggest hurdle was trust, despite working autonomously for the past 7 years with this company in a remote branch, working from home comes with other potential distractions for those who just want to "ride the bus".

Employment? Taxation? Consumption? Productivity? Gimme a break with your real economy schtik. Asset bubbles and capital gains, tax free are where its at, I got the RBNZ on my left and every merchant bank in NZ on my right. We'll defend this cash cow to the last unborn child, people's livelihoods be damned. sarc off.

Not a slightest concern or mention of credit conditions or the bond market and the risk to this key world funder of debt. This mountain of debt is what the world depends on and cannot pay out of existing earnings which are going to be down 30% minimum fo r6 months probably. Why is it the bankers NEVER raise this matter???

And in a suitably apocalyptic vein, Joel Kotkin wonders if the Big Apple will survive in anything like its current form....

Hi David. If things will not be normal till 2023, how come house price as westpak bank experts fall only 7%.

OR do theymean

It will start / open from 7% down after lock down and touch new lows going future. Lol

Just like they revised their +10% to a -7%, in 4 - 6 weeks they'll revise it again by a similar magnitude.

It'll either be back to +10% or to -24% depending on which way the wind blows.

Liked all these NZ economist, but here's the facts not many peoples sees; the isolation of earlier SARS & MERS shelving the vaccine effort years back, none of those economist actually seen, how this corona spikes adaptable to attach to new human protein - here's a clue RNA C19, the genome typo error is rapid/random. Go figure what that means - more world phantom $ to be sucked up into this tiny vortex folks! C19+1+2 - Vape that..

With advisers like Mr Topliss its easy to see why NZ banks become so moribund so easily and trash the economy as a result. This is the long overdue day of reckoning for the NZ economy and the vastly outdated aspects that have been on life support thanks to unsustainable sector friendly policies enabled by successive govts who preferred to kick cans down roads instead of facing reality. Tourism is largely unsustainable, how ever you look at it. In particular the low rent jobs, over crowding and pollution it generates are too. In one fell sweep the industry has been wiped out and the huge societal issues it was causing are gone. I think that in the long run is a good thing. All that remains is finding a way to redeploy the human capital. No mean feat but I think it can be done, and it may be easier than we think.

Don't think you really can forecast where we go. Look at how they have to manipulate inflation data. Because the economy is so geared to low rates that the real rate would give all people that worked hard for their money to much back.