Westpac economists say some recent data is tentatively suggesting that the economic situation may not be quite as severe as they had been predicting

Westpac economists say some recent data is tentatively suggesting that the economic situation may not be quite as severe as they had been predicting
TURNING ON THE TAP: Westpac economists say some key high-level indicators of economic activity are pointing to a faster recovery than expected.

Westpac economists say there are some signs the economy is recovering better than expected from the lockdown and they are now doubting that unemployment will get quite as high as they had been predicting.

In their Weekly Economic Commentary they say their forecast was that the economy would settle 6% below the pre-Covid-19 level after the lockdown was lifted.

"But some recent data is tentatively suggesting that the economic situation may not be quite as severe as that. This has seen some easing in the risk-off sentiment that had permeated through financial markets in recent months."

The economists say retail spending rebounded "surprisingly vigorously" after the lockdown was lifted.

"When New Zealand was at Alert Level 4, data from Paymark indicates that overall retail spending dropped 50% compared to pre-Covid levels, with spending in areas other than groceries down 90%.

"Now that we’re back to Alert Level 2, spending levels are down only 2% on the same time last year. Some of that will be catch-up spending after the lockdown, and sectors like tourism and hospitality are still struggling with sluggish demand. Even so, that is a faster recovery than we were expecting and points to an encouraging degree of resilience in households’ spending appetites."

And the economists say some key "high-level indicators" of activity are also pointing to a faster recovery than they had expected.

"For instance, during the lockdown electricity demand fell 15% but is now back around the levels we saw this time last year. Similarly, both heavy and light traffic movements have recovered most of their lockdown related declines, signalling that both people and goods are moving around the country again."

The economists also say the pace of job losses has slowed in recent weeks, "suggesting that the labour market has been more resilient than we expected".

"During the Alert Level 4 lockdown, we saw the number of New Zealanders on the Jobseeker benefit rising by more than 6,000 each week. In the week ending 22 May, that pace had slowed to 384. We’ve also seen some recovery in businesses’ demand for workers, with a pickup in the number of job advertisements."

They note that the number of people on the Jobseeker benefit has risen by more than 40,000 since Covid-19 restrictions were put in place.

"But while that is a very large increase, it has actually been more modest than we expected. In large part, that’s because the Government’s wage subsidy scheme has helped to keep many people in employment. We are likely to see further job losses over the coming months as the wage subsidy scheme comes to an end and businesses wrestle with weak demand.

"Even so, it looks like unemployment may not rise quite as high as our forecast of 9.5%."

The housing market, however, is more of a mixed picture, the economists say.

While sellers may be "dipping their toes in the water", buyers are more circumspect.

"April’s survey of housing market confidence showed a drop in the number of people who think now is a good time to buy, and a sharp fall in the number of people who think prices will rise over the coming year. That’s despite extremely low interest rates and the removal of [the Reserve Bank's] LVR mortgage lending restrictions. We’ve already seen a sharp fall in house prices in April, with the average sale price dropping by 1.1% just in one month (though the low number of sales during the lockdown means that sharp monthly drop does need to be taken with a grain of salt). We are forecasting a 7% house price decline between March 2020 and the end of the year."

Overall, the economist say while recent developments have on balance been a bit better than expected, the economy is "still being buffeted by powerful headwinds". 

"We expect that the combination of weak demand, pressures on businesses’ balance sheets and lingering nervousness about the economic outlook will be a drag on investment spending. In fact, surveys of businesses’ investment intentions are currently around multi-decade lows. That will be very important for the construction sector. As discussed in our recently released Economic Insight report, although construction has picked up as the lockdown has been lifted, we expect a second downturn in construction activity over 2021. That includes falls in both privately funded residential and non-residential projects. Those falls will more than offset the planned increases in public spending in areas like infrastructure."

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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73 Comments

29
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It is away too early to tell yet. International travel is dead and will be for a while, tourism and the feeder industries which support it will suffer too. Compliance costs for most tourism based business makes internal tourism too expensive for most Kiwis. Far, far too early.

But then the real estate industry and banks are pumping the property market......

17
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Also, the expectation that NZ's unemployment rate shall remain below 10% is highly optimistic. I don't see any growth sectors in NZ that can absorb the tens of thousands of low-skilled tourism, hospitality and retail workers being pushed out of their jobs.
The government's plan of getting these workers re-skilled and back into work through trade apprenticeships is also too ambitious. Barring a handful of manual labour roles, construction and infrastructure jobs require skills and aptitude - a fact I wouldn't count on Labour or Green party MPs to be aware of.

12
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And with Fletchers laying off over 1000, consents down in April YOY, some high profile construction projects put on the back burner, it really is difficult to see demand for tradespeople increasing in the short to medium term

10
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Yep, there was always going to be a "post lockdown" bump, where spending was "pent up" by those who didn't lose jobs. Once out of Level 4, you could see the massive lines and huge sales going through the tills at takeaways, Mitre 10's etc.

What is really important is the ongoing data, probably from this month onwards will provide the only valuable guidance as it will be the first month for a while without a serious lockdown (unless we get another wave).

"Compliance costs for most tourism based business makes internal tourism too expensive for most Kiwis. "

What does this mean? Are you saying compliance costs are too high, and should be reduced , to enable operators to provide cheaper services? What are these compliance costs?

Considering more than 50% of tourism in NZ is from NZs holidaying in NZ, and now NZers won't be able to travel overseas, there will be a lot of NZers who will be now by holidaying locally and spending their holiday money here. This is instead of spending it overseas, and that money going offshore. As there been any analysis or modeling over these amounts have been. It appears a lot of the articles I have read are very one sided and cherry pick stats to support opening the borders quickly. I don't have an issue with international travelers returning, but quarantining will need to be the new normal, as social distancing in many countries will now become the new normal. We won't have the need to do this in NZ, if we do actually succeed in eliminating the virus, but if we was to invite people into NZ from Covid infected countries, they must play ball, and not be a risk to reinfecting the country again.

That comment is almost a direct quote from a Tourism boss being interviewed on RNZ. And yes while many Kiwis do go overseas, they do it on a tightly controlled budget. Even foreign tourists complain that NZ is expensive, and or economy is a 'low wage' one meaning most Kiwis struggle to afford their holidays. I was in my late 50s before I could afford a self funded overseas holiday, and that was on a tight budget, and all my NZ holidays were at minimal cost. I could never afford the resort prices.

15
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"sectors like tourism and hospitality are still struggling with sluggish demand" - that's north of half a million jobs.
"the pace of job losses has slowed in recent weeks" - Après nous, le déluge.....

But it's nice to see the Relentless Posidividy on display, because, after all, their livelihoods depend on Happy Punters....

12
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But it's nice to see them confirm they can not foretell the future.

HT
Your comment shows an ignorance on your part as to what economic forecasting is all about.
Nothing but a smug egotistical comment.

That's funny, it's one of the few of his that I agree with

:)

What Is Economic Forecasting?
Economic forecasting is the process of attempting to predict the future condition of the economy using a combination of important and widely followed indicators.

https://www.investopedia.com/terms/e/economic-forecasting.asp

How many of the employees in those jobs would be NZ citizens, I wonder? Not to say NZ will not miss the revenue from the industries, but perhaps the welfare load will be lessened by international movement.

Westpac economists say there are some signs the economy is recovering better than expected from the lockdown and they are now doubting that unemployment will get quite as high as they had been predicting.

Financial markets were pricing something less than an apocalyptic economic breakdown late last week:

by Audaxes | 29th May 20, 5:35pm
The NZ Govt 10 yr yield is up +6 bp to 0.78%.
This price service claims the closing price today is 0.835%. A significant fall in price from a low yield recorded at 0.498% on 13th May, which translates to a 3.3610% clean price loss - ~76.67% annualised. Are the RBNZ's QE interest rate reduction endeavours at risk? Our banks' not so pristine credit ratings may warrant an upward revision of deposit rates.

23
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I suspect this says more about their forecasting than much else.

It seems fairly predictable that once people restarted their working patterns that spending patterns would follow to a large degree. People need petrol, lunch, lighting, heating and to restock everything not available in a supermarket.

The reals test comes when the lolly scramble money runs out.

I'm waiting on this weeks fuel consumption data. Last week it seems about 20% down but petrol and diesel consumption seem to be coming back. Sales of aviation and marine fuel and way down.

Quite a difference between the number of people in the Wellington CBD today compared to Friday.

For my work there are many construction sites that are operating at 100% again, and there's been an uptick in work queries. Given the lack of new design projects forward construction workload still looks low right now.

Wellington CBD over the long weekend was nuts. I suspect a large amount of domestic travelers wanting to spend a weekend away. But every pub, cafe, clothing and gift store was buzzing. People be spending like it's 2019.

all is good as long as house price holds.

The more costs we can push on to future generations of Kiwis, the better!

Gee Rick

Speak of the devil

Please don't try and tell me that you are a God sent angel.

13
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Do the unemployment stats include people on temporary work visas, who were mainly employed in hospitality and tourism?
Will the number of people applying for benefits jump sharply once the wage subsidies dry up?
IMO it's way too early to celebrate. Calm before the storm.

Good questions. Not sure that this answers things perfectly but it is interesting is the vein of what exactly we are counting as the impact.

According to StatsNZ, the employment impacts of the last major recession in New Zealand (the Global Financial Crisis) were:
• people worked fewer hours
• the number of available jobs fell
• unemployment rose
• more people moved into study
• there were fewer, and smaller, wage rises
• labour market turnover slowed

https://www.interest.co.nz/opinion/105293/masseys-alison-brook-looks-how...

Thanks, i'll give that article a read later.

13
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I have speculated for some time that NZ might be spared a bit of pain by virtue of the fact that a high proportion of workers in the most affected sectors are on working visas.
Time will tell.

Economists tend to be overly negative about downturns and come up with over shoots in their projections. I'm no economist but from the general business world around me the unemployment figures will stay well within single digits.

11
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Shoreman, do you not realise you're not allowed to post positive comments on this forum. All is bad, the more abysmal your post the more upvotes you get. lol

The more rhetoric the better... just think, these people get to vote in Sept

Hah, that's rich coming from you. Remember the time when TTP was advocating for banning 'negative' comments and you were cheering for him? It wasn't that long ago.

Yvil what’s your take on the governments response now? Surely you agree that lockdown was the best possible thing for our economy? A month or two of pain and now we seem to be largely back to normal (except tourism of course).

Economists are nicely balanced by Treasury who have been consistently over-optimistic in the current governments term, possibly due to the complete lack of achievement of any government plans. 2 years ago had us at above 3% growth, before we dropped to 2% in Q4 2019. No one could have predicted COVID, but it has conveniently hidden the earlier slowdown, the data being released as we went into lockdown.......
Treasury are still overly optimistic about the peak unemployment. Many employees are being held in jobs by the wage subsidy, the government won't want them in the jobless data so retraining, extension of wage subsidies and other such ideas will be extended to the election, just like spending oversight (RIS on all new spending).

Like others on this forum, I think this is too optimistic. I would be delighted and greatly relieved if the unemployment level is below forecasts, but how can this be worse than the GFC, as bad if not worse than the Great Depression and still leave us with unemployment below 10%?

Wage subsidies. Why fire an employee now when you can still have them work for you for a few months, paid for by the public?

Because there is a $1000/week difference between the cost of most skilled employees and what the wage subsidy pays?

A friend's employer put a third of its employees on $580/week when the subsidies were announced. If I had to choose between benefits or $580/week while keeping my job, I'd choose the latter.

You said "Why fire an employee now when you can still have them work for you for a few months, paid for by the public?"

If my hourly rate equivalent is $40, then $580 pays for 14.5hours, not 40. So they aren't working for you, paid for by the public. They are sitting at home on the computer 3 days a week polishing the CV and looking for a new job to pay the mortgage. So either you find work for them and pay them their normal rate, or you risk losing your skilled staff.

Yes, you risk losing your skilled staff later. As opposed to losing them now (if you decide to fire them).
I'm guessing it wasn't the most essential employees of the company that were put on the $580/week pay. I'd say many of them would've instantly lost their jobs. 2 days a week of work is still better than zero.

Not in hospo.

When do I get to buy a house for 10-15% discount please?

after October if it happens.

You can do that this very day.
2.99% from any major provider of debt will give you a handsome discount on the cost of money even a month back. And go back a year or so and you're probably already 50% in the money.
It depends what you want to discount on that matters?
(PS: The lower the cost of finance, the worse the projected 'value' of anything it can buy in the future is)

So what interest rate would you advise FHB's to wait to buy in order to ensure the projected future value of their home is positive?

-2%.. and a 20% discount off RV. :)

Go out and make an offer. Many property listings are price by negotiation.

Wait till the free money stops.

Will it actually stop though? Can the govt really afford to throw the economy out into the cold?

Well, it's not actually free though is it. So eventually it must stop regardless of what the government wants.

Nothing is free obviously. But when does it stop? or runout?

Sure, but much like environmental costs we can leave them to be paid for by younger and coming generations, right? No need to curtail lifestyles now.

That's a really worrying comment.

It makes a lot of sense now why the US stock indices are rising so well. US stock investors have read the tea leaves by checking these NZ leading indicators and extrapolating (Sarc) The problem with nz stats is we have to wait three to four months after the end of a quarter to get actual GDP stats and by then they're out of date. I suppose that stats nz still use paper forms and nz post to gather their figures

the US stock market is no longer rational, bad news = the Fed will buy, so good news for the market. Good news.. the only way is up.

The economy is becoming like the Truman show. Everything is fake.

That was a great film. Good analogy.

11
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My total spend of vehicle fuel for the past 10 weeks...$120.00 that's such an underspend it's almost scary! Wait till that sort of reduction in spending filters through the wider economy, how will economists view things then?

Its all spin. Put out some really bad numbers and then tell everyone its not going to be bad, even though it is bad just not as bad as predicted, therefore its good ! The shit has not yet even started to hit the fan but I can see a really big pile of it building up ready, still its such a big pile it will probably stop the fan dead so thats good news right ?

My local mall in Meadowbank has had three retailers close up in the past month. A walk through the main drag in Newmarket today told the same story. There isn't any bounce so far as I can see, only a slow decline in retail which is as one would expect in such times.

small to medium retailers always come and go, that is the nature of them, its only the bigger ones that survive on and on due to economies of scale and buying power.
it will be interesting to see how society adapts to work from home, buy online and home delivery

they aren't so much 'coming and going' as simply going. no doubt the work from home, reduce office space and online retail trends have been exacerbated by Covid but so has the cycle itself. my guess is that non big mall retail, irrespective of the tenant quality, has had its day.

Malls have very expensive rent. Maybe the main street commercial property sector will adapt.

At some stage commercial landlords will need to take a big haircut. A big portion of income goes in rent for many small businesses, landlords will need to cut that rent dramatically or risk getting none at all.

There has been a lot of talk about working from home, I just don't see people being as productive working from home. I therefore don't see it being a long-term thing.

no kidding I could have told them that...economists especially the ones at westpac are scaremongers...our economy was always going to bounce back...and it's not too soon to say as 90 percent is back up and running...

no kidding I could have told them that...economists especially the ones at westpac are scaremongers...our economy was always going to bounce back...and it's not too soon to say as 90 percent is back up and running...

no kidding I could have told them that...economists especially the ones at westpac are scaremongers...our economy was always going to bounce back...and it's not too soon to say as 90 percent is back up and running...

no kidding I could have told them that...economists especially the ones at westpac are scaremongers...our economy was always going to bounce back...and it's not too soon to say as 90 percent is back up and running...

no kidding I could have told them that...economists especially the ones at westpac are scaremongers...our economy was always going to bounce back...and it's not too soon to say as 90 percent is back up and running...

no kidding I could have told them that...economists especially the ones at westpac are scaremongers...our economy was always going to bounce back...and it's not too soon to say as 90 percent is back up and running...

Making a good point there adele :) its great that the activity is really high already. Its even a relief to be in a traffic jam again.

10
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It does get your point across well when you post your comment 6 times haha.

These economists are in fantasy land. What’s the total cumulative projected loss in GDP for the year ending 2020 and beyond? How many jobs have been lost? How much of that temporary unemployment will become structural unemployment? Tourism, possibly NZs biggest export earner, has been decimated. Most significantly, government’s misguided policy of “eradicating the virus” in my opinion will be futile, however it almost guarantees massive economic losses.

do these people live in the real world -- 50000 new job seekers + heaps more that are not eligible to claim + heaps more on subsidy schemes + heaps more on reduced incomes/less hours/no overtime massive losses still to come - foreign tourism years away, commercial new builds stopped dead - new residential builds slowing many being cancelled -- Hello 6% is way too optimistic in its own -

Why should house prices stay up? Only those needing to sell are going to lose. Unless Xing's mates back home in China are those needing to sell.