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Economists are welcoming the country's faster than expected move to normality after the lockdown but warn that bad news is still ahead regarding unemployment

Economists are welcoming the country's faster than expected move to normality after the lockdown but warn that bad news is still ahead regarding unemployment

Economists are being pleasantly surprised at how quickly New Zealand is opening up its economy after the severe deprivations of the lockdown - but they are warning that bad news is still ahead for the jobs market.

There was a remarkably similar theme running through the weekly newsletters of the country's major bank economists on Monday. 

As ASB economists put it the shift down to Alert Level 1 and "associated shift up in the economy’s speed limit", will join a string of other news suggesting the NZ economy is faring a little better than most expected in the post-lockdown world.

"However, we’d be remiss in our role as purveyors of the dismal science if we didn’t warn about the come down.

"First, we’re currently in the midst of the release of pent-up lockdown demand that clearly won’t last forever. Second, the stimulus drugs are probably having their peak effect right now, but we’ll have to be slowly weaned off them as we ratchet down through alert levels and conditions normalise. The staggered end to the wage subsidy will be particularly difficult.

"Finally, it’s early days. The impact of Covid-19 on the labour and housing markets in particular was always going to be a story for the second half of the year. It’s too soon to sound the all clear."

On the jobs market ANZ economists go a bit further and are a bit gloomier than that.

"Despite the very welcome fact that New Zealand is progressing through the Alert Levels faster than we had previously assumed, the medium term outlook remains gloomy," they say.

"We have noted previously, that as we phase through the Alert Levels the impact on economic activity will become less about what can happen (ie supply disruption) and more about what will happen (ie a weaker demand pulse).

"International tourism has been excised from the economy – that in itself is one heck of a demand shock. And the usual feedback loops between employment, spending and the housing market will increasingly make themselves felt.

"At this stage, we expect unemployment will peak at 11% in Q3, before gradually improving. However, the timing is uncertain in the short term, volatility is expected and measurement issues are likely to create some noise."

BNZ's head of research Stephen Toplis says the post-lockdown bounce BNZ economists had initially anticipated is occurring earlier.

"We have not significantly changed the path of the recovery inherent in our forecasts just the timing thereof. But this does matter and leaves the economy with a much smaller deadweight loss than we had first anticipated. The most obvious transition in our view is that we now expect economic activity to return to pre-Covid levels in the second quarter of 2022. We started this process thinking it would be Q4, 2023."

He says, however that a recent drop off in new job seeker claims "has got many excited" about employment prospects "but we maintain our long-held view that once the wage subsidies roll off the unemployment rate will rise aggressively further".

"Over the course of this month the subsidy currently being received by 1.66 million workers expires. The 'extended' subsidy can then kick in for as many as 910,000 of these folk, which means that at least 700,000 people will be in a position of potential vulnerability this month.

"The fact the Government believes up to 230,000 businesses, employing over 900,000 people, might be eligible for further subsidy is in and of itself an indication of just how weak the economy remains. The quantum potentially eligible represents over a third of the entire number of people employed pre-Covid. And recall that businesses can only get this subsidy if they can show revenue has recently been 40% below normal.

"Importantly, we reiterate our strongly held view that businesses will use the current environment as a catalyst to restructure. Restructuring in a downturn inevitably means learning to operate with a lower number of staff, reducing costs generally and driving productivity hard. This being so, even if activity levels returned to “normal” they would do so with a lower demand for labour. More than anything else, it is this that drives our view the unemployment rate will continue to rise to double-digit levels and will take much longer to decline than it did to rise."

Westpac economists say "the hole" in economic activity is deep and the already weak labour market prospects for many workers are likely to worsen, particularly once the wage subsidy ends.

"Indeed, by the end of 2020 we expect the New Zealand economy to be 6% smaller than it would have been in the absence of the Covid pandemic. Granted, we now have to acknowledge that the actual hit to the economy may be a little less than that, but it is still going to be a deep and severe recession."

Kiwibank economists say they have been surprised by the speed and size of the rebound of card spending among Kiwibank's customers.

"Some of the rebound is surely just pent up demand as authorities wound back Covid-19 alert levels. And stronger card spending might be inflated (a little) to an aversion to using physical cash. But we have noticed spending levels holding strong over level 2. And we could get another lift into level 1. NZ has squashed the Covid curve and enabled the wind-back of social distancing measures much sooner than most economic forecasts and downside scenarios," they say. However...

"It's easy to get carried away with the positive noise, a natural reaction to the economic gloom of the last few months. But NZ is not out of the woods by any stretch. Jobs will continue to be lost, and there is uncertainty surrounding what happens when the extended wage subsidy ends in a few months' time. The economic data feed will still have the ability to shock in the coming quarter."

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29 Comments

25
up

Provincial New Zealand is already in an horrific state from an employment point of view.

We are hearing of shops and motels shuttered in New Plymouth , Motels and hotels shuttered all over the place . Car hire company retrenchments , commercial property owners defaulting , anyone servicing hospo putting off staff , and Camper vans for hire at $20 / day ................thats cheaper than renting a 1 bed flat or a single room in a flatting arrangement .

And until we get Aussie tourists coming back here , its going to get steadily worse

Its a bloodbath .

And welfare claims are being masked by the wage subsidy , some serious can -kicking by Robertson

15
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and its only just starting, businesses have held on for last 10 weeks but the closures are starting to ramp up as are the restructures. Where is the big infrastructure spend cindy. Going on a trip around NZ dripping money and promises out at each stop is gringeworthy...give some hope to ALL of NZ not just the ones putting on morning tea.

The thing about the WuHuFlu is simple: It's a Universal Signal, upon which any and all businesses can act, without the possibility of having arranged things in a Quiet Cartel (which accusation would otherwise be quickly levelled). So all the Rationalisations, Re-Pricings and Restructures, lying dusty upon the shelf as heretofore being Too Hard, are now updated and fully in play.

Without resource consenting reforms, I doubt big-ticket infrastructure announcements would do much of a dent in the oncoming joblessness wave of the country.

The issues of the last ten years or so when it comes to consenting have never gone away - some Governments have been more effective at outrunning criticism of it than others. Now we're about to pay a price for the 'out of sight, out of mind' approach that whataboutism leads to. The first step to fixing it is actual accountability for a lack of progress in nationally significant projects.

Agreed, the govt needs to drop this "middle class welfare" garbage & get spending on big infrastructure. Every project that has a positive NPV & an obtained resource consent should be given the go ahead asap. Debates over the "mode of transport" should be shelved. Case in point the east west link. Sure not the most impressive project financially, but it had a positive NPV & has a granted resource consent pending a few pointless judicial reviews. Why this hasn't been given the go ahead given the current economic environment is beyond me??

19
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So what makes you think Aussies are going to have lots of readies in their wallets to be swanning around the country? May I remind you the economic fallout is worldwide?

Further I have serious doubts over the trans-tasman bubble. Australia is opening back up with low levels of COVID19 community transmission. They have suppressed the virus but not eliminated. I doubt they are going to peruse an elimination strategy & instead will chose to accept low levels of COVID19. They will probably form their own bubble with Japan, Vietnam & South Korea. A "suppressed COVID19 club" if you will. We will be left on the outer.

Suppression is temporary, once you stop taking precautions, it will be off again.

Not too sure about this - sure the tourism has been hit hard. But I am still looking for 2 new factory staff in Fielding. - no experience required - just reliable and hardworking. Got an ad on Trademe. 22 replies so far - only one suitable and I think he just took another job. $22/hr isn't too bad is it?

Not too bad if the work isn’t horrible and you’re a decent boss! 21 out of 22 applicants ’unsuitable’ seems a lot though - does it require a lot of physical strength or unsociable hours or something?

.

You do need to be strong - there is a fair bit of lifting. But nothing a 17 y.o. girl can't handle all day. But when your mum sends in the application, or you readily admit you didn't make the end of your last 90 day trial, or your CV is peppered with mistakes etc etc. The one we had high hopes for and interviewed well hasn't responded to emails, texts of calls since Friday. So we're back to square one.
Normal hours. And certainly more enjoyable that the local meat works.

What was interesting was a trip to work and income - (as the phone waiting time was nearly an hour) Security guard on the door wouldn't let me in. Had to get him to call the manager - I don't think they believed we were offering jobs. Then I got given a card with the standard phone number - and its associated hour long wait. I had to work hard & be patient just to get inside to talk about a job we had to offer. And the inside was devoid of any activity - mostly security people insisting on sanitising. No sign of staff or clients or anyone. All that wasted space and nothing happening - no wonder NZ is so inefficient.

Feilding FFS. That might be your issue.

How to fill up the 20 bn a year hole from absence of intentional tourism and education is key of NZ to avoid a recession.

16
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Don't worry guys the RBNZ stands ready to pump the property market to counter any recession.

You can't eat a house

This is not something that concerns the RBNZ.

They’ll pump the property market right up to the election.

After that well it doesn’t really matter because Labour will have won another 3 years and without needing NZF.

10
up

Thank goodness we are in as good a position as possible. as a country we have done so well and we should be so proud of our effort.
Things would be a lot worse if we still had or slipped back to say 500 active cases and were still at or had to return to level 3.
I don't thinks that most NZrs have a clue what would have happened if we had widespread community spread. Our hospitals are at practically boggle point under normal circumstances. The decisions amongst the medical staff that I have heard is that any body over 50 would have been triaged out of the health system and left to die. So as one who may have been affected, thankyou.
Going forward all we can do is keep a very firm hold on the boarders, move as many back packers and temporary work visa holders out of the country as kindly as possible to balance out as many of the lost jobs as possible.
The Government needs to be a lot more active and assertive re the tracing systems. It is very disappointing when you see that very few businesses are displaying a QR code. it is very hard to have any sympathy whatsoever for their bleating over their lost trade. If it were up to me, they would be closed by the police until they displayed one. At level 1 with all the freedoms, the best contact tracing system is one of the few defences remaining against a second wave, should an infection get in through the boarders.

We would have been just another Covid statistic among screeds of other Covid statistics, instead the whole world is a bit in awe of us, we WILL reap benefits from that.

12
up

How? Our border is still shut.

We're still exporting and importing, aren't we?

People moving and people performing services are our bread and butter.

We are effed.

If this was a video game, and you were the only country that was virus free, you'd relocate all professional sports, tv and film production, high end food production, medical R&D, rich old people and a whole slew of other valuable industries here, reap the rewards and clock the game. However in real life NZ will just fumble about, too many snouts in the trough for the establishment

A reminder of why the future in the US looks so challenging - and how are we any different here?

https://www.nytimes.com/interactive/2020/04/10/opinion/coronavirus-us-ec...

How we measure inequality is problematic. The paper says that the 0.1% share of total wealth has increased from 8% in 1980 to 20% in 2016. That looks terrible. But when you go into the breakdown of wealth, you realise that they own the same things: the rich own stocks and companies and the rest own their properties. The valuation of stocks have gone mad over the past 20 years. P/E of 60 in 2010s compared to P/E of 5 in 1980s. Offcourse with this shift on how stocks are valued, their owners become richer. But has it increased inequality? average american did not own any stocks in 1980s and they do not own any now

Will be very interesting to see what happens in the smaller provincial towns and cities as the covid induced economic shockwaves ripple out through the wider economy. I spent a good chunk of the post gfc years working provincially and although comfortable could see the hardship in the wider community, especially as many employers were encouraged to casualise their staffing roster... It was astounding visiting Akl to see just how decelerated the regions were in comparison. Can't help but think casualising employment compounded the economic downturn as it took certainty from employees wage earnings. Hopefully business NZ doesn't take that direction this time, its so shortsighted.

Considering how things are going it's more likely that we'll get tourism from the Nordic/Baltic countries, who have allowed free travel between one another (excluding Sweden), before we get tourism from Australia. The total population of those countries is similar to Australia, and considering how few flights there are, travelling from Europe to NZ will be cheaper than it was previously. Thailand could also be a country from where we we could receive tourists. I think that is something that needs to be looked into the rebound the tourism sector.

Days to the General Election: 24
See Party Policies here. Party Lists here.