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BNZ economists say the single biggest uncertainty facing the economy over the next twelve months is how business and consumer sentiment responds to endemic Covid

Business / news
BNZ economists say the single biggest uncertainty facing the economy over the next twelve months is how business and consumer sentiment responds to endemic Covid
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The 'days of reckoning' are fast approaching for New Zealand, according to BNZ economists.

In the latest BNZ Markets Outlook, BNZ head of research Stephen Toplis says the single biggest uncertainty facing the economy over the next twelve months is how business and consumer sentiment responds to endemic Covid.

Toplis believes There are "many ways this can go". At the extremes we could:

  • collectively accept the risks of operating in such an environment, relish our freedoms and push ahead with economic expansion; or
  • fear could rise aggressively, domestic spending on services could collapse, labour supply could drop and the economy could retrench.

"In reality, there will be a mix of both. And we really have little idea as to what the end game will look like. All we know for sure is that we are in a transition phase and transitions are disruptive," Toplis says.

He believes there is still "a significant chunk of the population" that is still not prepared for operating in a world with Covid.

In his opinion, the major changes that need to be considered by business are:

  • The demand for labour will increase, particularly in public-facing businesses as cover will be required for those who can’t come to work because of the direct, or indirect, impacts of COVID.
  • The supply of labour will be reduced by those who are simply too fearful of coming to work.
  • New Zealand will no longer feel safer than the rest of the world so domestic labour will again be attracted offshore.
  • On balance, then, the costs of labour will rise.
  • There will be a sustained shift towards online purchasing. 
  • Hospitality sales are unlikely to return to pre-COVID levels in the foreseeable future.
  • The international tourism sector will re-emerge but at a relatively glacial pace.

Toplis says from "a macro economy perspective" this all means that:

"Capacity constraints will remain elevated.

"Labour costs will continue to rise.

"There will be heightened demand for capital/labour substitution.

"Potential growth will be lowered.

"So inflationary pressure will occur at lower levels of activity than previously assumed.

"Meaning that upward pressure on interest rates will remain for some time," he says.

Toplis says everything is broadly on track for the economy to move to the new traffic light system sometime in December "and the PM has 'promised' Aucklanders they will be able to travel for Christmas".

"It is at this point in time that the rest of New Zealand, nationwide, will experience the spread of Covid and the transition will rapidly gain momentum.

"For most of the world endemic Covid is now situation normal. New Zealand is yet to experience this phenomenon.

"We will soon be thrust headlong into a very different world."

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33 Comments

Hospitality & Tourism Businesses aren't coming back any time soon. Though such businesses may survive, I certainly wouldn't view them as the 'cash cows' of years gone by.

The question is, do such operator limp along - always running faster to stay in the same spot.. OR do they go into hibernation where possible [low debt operators].

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And what impact will this have on rents

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3

And what impact will this have on rents

If I were the operator of a backpackers, I'd be asking for a rent reduction.  

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You are not a backpacker operator so you know squat, like profit levels for each party, whether rents are already low, how much investment has each made, yes you can ask but do not expect 

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Hospitality business gone

Tourism business gone

International business gone for now

Retail businesses and town effected by above are gone...atleast till next few years

BUT who cares AS

HOUSING PONZI will be kept alive and that equates to ECONOMY so as long as RBNZ and Government keep printing and supporting - earlier by action to promote and now by inaction to support, NO WORRIES.

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5

You are quite right about international tourism. My family in the UK, 2 adults, ~45 fully vaxed and and two young children <5 wanted to come here for xmas or new year. Now Argentina is going to have the benefit of their largesse.

Tough also on Air NZ. Quantas is already getting into gear.

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Whoever this economist is no better than Joe on the street. There is no value in saying anything can happen - no insights there, just noise.

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I thought the Economist did a good job of tying likely human behaviour to the likely Economic impact.  At least is shows the thought processes to the possible impact.

One thing that hasn't been talked about in NZ but firstly in the USA then Australia, is the number of people resigning to do other things, including revising retirement plans.  The increase in value of assets through QE has given people the option of opting out early, particularly if one is willing to give the big cities the bird. 

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I don’t like economists using the word ‘will’ so inconsiderately - has he seen the future?

He has fallen for a problem that most suffer with, but I expect the economists to be aware of the heuristics bias. It is a process in which you start with a plausible explanation and construct interconnected arguments that appear believable. They have no relation to the probability of occurring.

The article starts with a few plausible scenarios and constructs a narrative and makes the future very predictable – that’s a disservice to the profession.

The illusion of knowing something when actually all you’ve done is just looked elsewhere and found similarities. Anyone can do that.

At least have the humility to say this or that ‘could’ happen, not ‘will’ happen

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Simple really that's what people do. They make their own choices.

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0

There are many things this govt is, but one of them is not brave.

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12

You forgot to state your alternative government who you think is brave.

Would it be yourself forming a braver party?

Would it be squeaky mouse and his faceless10 Act MPs who sit in Parliament collecting salaries for doing nothing?

Would it be the charismatic Simon Bridges who was sacked by his own Party?

Would it be Judith Collins who has polled the lowest in National Party history?

Mirror mirror on the wall who is the bravest of them all?

 

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You have summed it up. None of our MPs are worth the salary they receive. They simply do not add value to the nation.

We could knock our Parliament down to ~10 and still be short on suitable people.

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Niue has 20 members of Parliament.

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They are all possibilities however for the current collection of clowns infecting the Beehive impersonating a Govt, Bravery is a feature totally absent as is its ability to deliver anything of positive value to most NZers.

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1

As long as Mr Orr and Mr Robertson keep on pumping housing ponzi, nothing to worry.

Keep on inflating the bubble and let us see where all this debt and inflation leads to as who cares about long term as now Mr Orr will be thinking of a year till he is  reappointed and Jacinda till 2023 till next election and Definitely will be able to kick the tin and manipulate till that time before reality kicks in, unless external forces play dirty with them.

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2

Sounds like Toplis is forecasting Stagflation.

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Yes he is and he is in good company with those blessed with functioning brain cells.

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Massive shift to online shopping, who can be bothered running all over town for a blender purchased yesterday ? Let your fingers do the walking as they used to say. Usually discounted online and pay $6 for delivery. Spend you time and save petrol doing something else.

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5

Most kiwis are lucky they have not experienced Amazon and Amazon Prime delivery.  Going shopping here is like going back to the stone age.

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2

Never bought a single thing from Amazon. E-Bay is the go to for me, most things that are small are freight free out of China. No idea how they do it the total price ends up being less than the courier charge alone in NZ. Local stores doing a good job. never used the Harvey Norman Website before but it was fast and easy with order tracking and automated e-mails, very good I thought. Don't mind waiting a few days for delivery the couriers are run off their feet at the moment.

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So ba is are worried about the shape of the new normal. Yet no comment about the crippling level of debt most are now under. 

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The only reason why a vaccinated person would be worried about returning to the outside world with covid circulating, is 18 months of government fear-based psy-ops.

 

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9

Actually no, it depends on who is at home, like an unvaccinated child! Everyone, including the media and government, seems to be forgetting about the massive long term risks to kids in all of this. We will certainly not be fully participating in the economy until  our children are protected. 
 

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It is not going to be long before kids 5-12 years old will be able to be vaccinated, so this issue will be greatly reduced.

On the other hand, if there is somebody in a household who is willingly refusing to get vaccinated, then let Darwin work his magic.

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Risks to children 5-12 without underlying conditions are practically nil. Not nil, but less than a drive in the car.

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2

What massive long term risks? Jeez how much fear porn has Swingtrader swallowed.

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Check and opine why Ireland with 90% injected with a spike protein is seeing its ED's overwhelmed with Covid cases, which proves the spike protein has limited protection against Covid 19.

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The major "chunk" too afraid to operate in the big bad covid world can stay home in their lounge and kitchen, surfing the internet and ordering from their covid bubbles. Not a problem. A lot of women (and men) enjoy zoom and video calls and talking to friends and family, it is a whole brave new exciting world so the property bubble will not pop just yet. They will like to share new experiences and happenings and have their homes looking good for others to see. Just like there has already been an upsurge in personal grooming care products as people focus on the camera and others but more so on themselves. Too hopeful ... ah well it's a theory

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"New Zealand will no longer feel safer than the rest of the world so domestic labour will again be attracted offshore."

Will this mean that all those Kiwis who had been living overseas for the last 2 decades, and only came back to NZ for the freedoms we enjoyed before Delta struck, will be returning to their old lives once they've been double vaccinated?

What's going to happen to all those overpriced houses that they bought when they came over here?

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And there's another article on the homepage about BNZ having made their biggest profit ever.  So 1) They are creaming it and 2) They worry that their own lending might have caused a problem.... 3) So they will be looking for a bailout should the sh*t hit the fan.

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"It is at this point in time that the rest of New Zealand, nationwide, will experience the spread of Covid, and the transition will rapidly gain momentum."

The fact is being endemic does not automatically mean Covid19 is less risky or disruptive than a pandemic. It all comes down to the stress of the medical system, hence our tolerance to the caseload. It is likely we will take two steps forward and then one step back. 2022 could be more challenging than 2021 and 2020 in a way. 

 

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Hope the BNZ (and everyone else) can get that through to the PM and all the other highly paid beehive dwellers that there will soon be nothing left of the economy - or is that the goal? 

How many migrant workers has the UN told her import and give residency to in order to fill the jobs that honest Kiwis have lost and will lose?

I wish our government would stop being led by the UN and World Economic Forum (whose poster-child she is) and take an interest in New Zealand. Stop speaking in a language only 5% can understand at best and stop forcing  TVNZ to do the same. It is not designed for goody-goody reasons, it is designed to destabilise and wreck.

Then, from the ashes, she will build back the World Economic Forum's mandated "utopia" of state dependence, surviellence of everthing through the internet of things (and the body - in case you didn't know).

She is following the WEF gospel so perfectly they must have promised her something that will make it worth her while. 

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