RBNZ releases economic scenarios ahead of much-anticipated Monetary Policy Statement; Takes a more upbeat view than Treasury, but notes that even at Level 1 international tourism will be reduced to 10% of normal activity

RBNZ releases economic scenarios ahead of much-anticipated Monetary Policy Statement; Takes a more upbeat view than Treasury, but notes that even at Level 1 international tourism will be reduced to 10% of normal activity

The Reserve Bank (RBNZ) estimates that during Level 3, the economy is producing 81% of what it usually would, and at Level 2, this figure will jump to 91%.

At Level 4, it estimates Gross Domestic Product (GDP) was 63% its normal level, and at Level 1 it will be 96%.

The RBNZ considered the direct impact measures to eliminate COVID-19 will have on GDP. It didn't factor in the flow-on effects on demand. In other words, it didn't consider the effect reduced confidence will have on spending and investment decisions.

The RBNZ included its estimates in a report published on Wednesday, 'Economic impacts of COVID-19 containment measures'.

While very high level, its outlook is more upbeat than that expressed by Treasury in an April 14 report:

Percentage of normal time GDP produced at each alert level
  RBNZ Treasury
L1 96.2 90-95
L2 91.2 85-90
L3 81 75
L4 63 60

The RBNZ also detailed how different sectors were affected by the lockdown. 

International tourism reduced to 10% of normal activity - even at Level 1

The RBNZ didn’t include a graph like the one above for levels 1 and 2, but did directly address the impacts of the travel and social distancing restrictions at these levels.

It noted that even at Level 1, where travellers from overseas are made to self-isolate on arrival for two weeks, the international tourism contribution to GDP will fall to 10% of its original level.

The RBNZ assumed the contribution of international students would halve and domestic tourism linked to overseas travel would fall to a “negligible” level.

This would shave 3.8% off normal time GDP.

At Level 2, it said travel restrictions will continue to have a massive impact on domestic tourism.

With people directed to avoid non-essential domestic travel, it estimated a 75% reduction in travel would shave 4.5% off normal time GDP.

As for mass gatherings of more than 100 people indoors and more than 500 people outdoors being banned, the RBNZ estimated this would only knock 0.3% off GDP.

Once again, it acknowledged there are a number of uncertainties around these estimates, which only factor in the direct impact of restrictions.

Estimates to help shape monetary policy decisions

The RBNZ said its estimates, and the assumptions underlying them, will inform the “projections and scenarios” it prepares for its quarterly Monetary Policy Statement (MPS), to be released next Wednesday, May 13. 

These estimates will therefore also help the RBNZ’s Monetary Policy Committee decide whether or not to expand its quantitative easing programme, currently set at $33 billion, in order to meet its inflation and employment targets. They will also help the Committee make a call on whether to use its other tools to loosen monetary policy. 

Prime Minister Jacinda Ardern will on Thursday provide more detail on what Level 2 will look like. Then on May 11 Cabinet will decide when New Zealand will make the move. The expectation is that the Government will give the country at least a couple of days’ notice before moving levels.

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?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.



I suspect that the Treasury numbers are more accurate. A lot of hospitality and retail businesses will struggle to profitably operate in L2, and anything that involves a crowd is still dead in the water. I think the "fear factor" instilled in the populace will weigh on consumer spending for some time.

There are also the frictional economic inefficiencies that are widely prevalent in L2 (eg we use a cost of people's time in evaluating transport to improve commutes, but are happy to waste half an hour of people's time daily queuing outside the supermarket). These all have a negative collective impact on productivity.

I agree with this assessment. Social distancing, additional hygiene standards and companies operating in half-measures will make many companies that appear to be operating close to normal, be far from it. Companies with both staff at home and in the office leads to many impedance mismatches, as well as companies still offering many home deliveries. For many businesses it will be as if they're running two separate companies and without the resources to do both.

Think about construction too. Effectively you won't be able to have more than 1 person say working in a confined space (e.g. bathroom renovation).

The reality is that most owner-operated firms will be pragmatic and look the other way, but larger companies will definitely lose productivity.

Hah and Hah again. Currently doing a like-for-like job for a relative prior to a kitchen install. Sparky, plumber, builder, household members and assorted pets all milling around in a 4x4m space. But everyone signed the Register, so we're cool.

Yep we had a connection problem which needed quite a big hole dug and then the inspection and repair and inspection of the repair. From my “safe distance” it looked a bit like a scrum at times. Still they all knew each other, no problem to contact trace then.

Back, but not back this week. $1 buys 30 cents.

Under level 3 there's about a 70 per cent decline in productivity because I cannot have a carpenter and an electrician in the same house on the same day at the same time."

It was never going to be easy or inexpensive, and productivity was always going to take a hit compared to the environment pre-lockdown


Ergo why bother? Wait another week or two and save yourself a fortune.

Et tu Brutus , we cant trust anything the Government or its agencies says right now in relation to this issue .

I, for one, dont believe a word of this spin .

And if they are lying , its going to turn around and bite them on the arse

Engery in = engery output.
Not much engery going in.......

Despite your typo the isn't much energy input according to Z Energy's weekly market announcement on fuel consumption. Last week shows a pick up in petrol and diesel consumption but clearly not enough to get the massive boosts that RBNZ is claiming. Perhaps the RBNZ should use data instead of fabricated predictions.

Sorry fat fingers and my glasses broke.
And add the global lack of 'energy' going into the system with not much hope of it increasing.

RBNZ is very optimistic. Construction under level 3 is not running at that capacity (or if it actually was everyone would be breaking the rules to be that productive).

I'm a builder and following the rules and the slow supply of materials is adding serious time. Materials that I ordered last week, still not arrived.
Have heard of lots of sites where they are not following the rules.

Just reading about the man whose modelling resulted in these draconian lockdowns resigning because he flouted the UK one to have a tryst with his married lover. He’s resigned from the UK’s pandemic response team. Is it just me, or does there seem a one law for us, one law for them mentality developing? David Clarke...

There has always been an 'us and them'. The only thing that matters "Who 'them' is!", and if you work hard; do as your told and don't rock the boat, then you too, can become one of Them. (or so we are falsely led to believe. And the sad thing is, that bribe works!)

Obviously the UK subject is an academic, in which case one might have thought, such lust could have been handled academically.

How does one handle lust "academically"? By reading scientific papers about intercourse?

Chambers defines handle as “to hold, move about, feel freely” & academic “theoretical only” don’t think can elaborate on those two, let’s say oblique, mental connections on this forum though.

The Imperial Model was given to the UK government mid March. China, Italy and several other countries had already implemented lockdowns well before mid March. China's lockdown was February. Italy was 2 weeks prior. How can the Imperial model have caused the lockdowns when there were already several lockdowns in place before the UK government had even seen this one?

There is very much the, 'don't you know who I am' culture in NZ I have found.


Total garbage.
There's no way GDP is 81% of normal in L3.
Yes, 70-80% plus of the workforce may be 'working', but I have used quotation marks for a reason.
Very few people I know working from home would be above 60-70% of normal productivity.
I'd be surprised if it's more than 60-70%.

It seems to me that these geeks use quantitative analysis far too heavily. They need much more qualitative analysis complementing it.

It does depend on what you base case is but it seems to me a 10% reduction in GDP would be an optimistic scenario this year.

If the government is relying solely on RBNZ and ignores Treasury estimates for their upcoming budget and policies, there's going to be hell to pay. But at least from my view of the past, this is exactly what is going to happen.

Totally agree, otherwise why would they send an internal memo to MSD expecting 300k of newly unemployed.Maybe 1 + 1 =3

If RBNZ is counting anyone working from home with kids off school as normal levels of productivity then I would like to introduce them to my 2pm glass of red wine habit.

Brilliant Ginger , brilliant , I could just do the same now you have suggested it , and my comments could be more outrageous than normal after a few glasses of a good Aussie red

I suspect they are counting on our main industry picking up after the lockdown. Namely, the Holy Real Estate Industry. Perhaps they've been reading some of the spruikers' comments here. Remember, Ye Olde Property Clock is going to tick soon, doubling the value of real estate all over New Zealand.

Surely unemployment, lack of investment and continuing uncertainty will undermine the number of valid buyers?

@Fritz your comments remind me of a school play I saw 55 years ago written by Hans Christian Anderson ............The Emperor's New Clothes .

Thanks for pointing out the load of cods being fed to us by the Government

Agreed. I'm a Registered Nurse and my workload is at least half what it usually is. Lots of surgical nurses coming to work with no patients to look after! Dropped my daughter at daycare where 3 teachers were looking after four kids.

That's interesting, everyone I know who was working at home during Level 4 (including my partner and myself) has been extremely busy. Starting earlier and finishing later, some weekends as well. No boundaries between work and home life at all. It's got a bit more relaxed now, but overall we've been extremely productive. Easily more so than actually being at the office.


it highlights how superfluous retail and the buying and selling of houses is to producing GDP. Most retail items are imported and mountains of debt piled into asset speculation obviously don't produce anything,

it highlights that GDP and the "wealth of nations" are flawed measurements for understanding a healthy economy

Why do I feel like we only have the half of the economy going?

Not even that in many sectors!


I suspect we are either being conned or the RBNZ and Treasury have got this hopelessly wrong .

I would hazard to suggest that this is Spin to try and instill some confidence , with the emphasis on "con"

Wait until GST returns are filed for April and May , and then we will better understand the spectacular decline in economic activity across all sectors

Car sales likely down 98%
Hotel occupancy down 95%
Air travel down 99%
Timber exports on hold
Fuel consumption down around 60-70%
Restaurant seats down 100%
Clothing sales down 100%
Footwear sales down 100%
White goods sales down 85% ( Briscoes reported 36% drop for the entire quarter and that was before lockdown)
Doctors visits down significantly
Financial services down significantly
Motor vehicle servicing and repairs down by at least half
Rail and freight down significantly
Construction sites closed over April
Retail non food /clothing down around 90-something percent
Car and campervan hire likely down in the seventies
Non-interest income for Banks likely down significantly
International students who fund our Universities , all but gone !
Short -term insurance premiums down as policies were suspended for fleet cars not being used

Maybe RBNZ and Treasury could show us their detailed workings as to how they arrived at this rosy scenario

Yea they are beyond dreaming.... no way....

In my personal opinion there is no way in hell either numbers are correct for any of the levels. 75% & 81% at the moment?! In level 3?! Everyone that has some sort of job security still that was at all thinking, and not acting on purchases, are most likely differing new X & Y goods for a while, then there is those who no longer have a job and their decision on spending is made for them. Throw on top that no company is spending a cent more than they have to and you arrive with 19% or 25% reduction in activity in level 3? Lol no way..... shift the left hand column down by one and come up with 65% reduction for level 4 and give the old level 4 to level 3 and so on, and you might be close... All else staying exactly the same as 2019 daily, and you wipe tourism ONLY, and you have about a 10% reduction in GDP in any given day, before you even add anything else.... thats slowed with the respective levels..

marmiteJ. You make a good point about the flow on effect of businesses cutting costs. We have taken the scalpel to every bit of spending we can. Any 'nice to haves' are gone, most cleaning etc has been in-housed. One of these external service suppliers said he rapidly lost over 50% of his clients. Staff who would have once given you a strange look if you told them they now had to also mow the front berm and weed the garden are suddenly very happy to do whatever it takes.


The report contains an important qualification - 'It didn't factor in the flow-on effects on demand. In other words, it didn't consider the effect reduced confidence will have on spending and investment decisions'.
Given 'confidence' is central to most spending decisions it kinda begs the question of why bother producing this report.

What about the wealth effect? Like the shareholders who just took a hit and the property investors who are likely to now take a hit?

Ha, wealth effect ..... a now anachronistic opium like induced fantasy dream that people years ago thought real.

Its easy they are part of the government in the Bar graph, operating at 90% the whole time, so they have to produce some sort of report to account for their 90%. It does'nt mean it is accurate, just that they are producing reports. If they bothered to go for a walk down any main street they would soon reallise nothing is operating at 80%. The scary thing is they are making decisions off these models.

If any further evidence of collapsing confidence was necessary the over 100K mortgagors who have so far sought relief from their financiers should dispel any lingering doubts about the extent. And that's while we are still in the phoney war sitzkrieg wage subsidy phase.

Bingo middleman. But even without that glaring omission, they're still dreaming. There is no way productivity is near normal levels for most.

GingerN. yup, but I might interrogate your last sentence a bit with a personal observation that those able to work are demonstrating a serious commitment to their employers survival. It's impressive to see the way most are bending their backs. The C19 compliance procedures are a serious productivity drag but NZrs are innovative and find ways to make it happen. Once we get back to L2 or 1, a changed attitude to hanging onto your job will prevail.

GDP is 81% of normal in L3... I feel it is an overestimate.

We don't overseas tourists flooding places like Rotorua or Queenstown, We don't have international students populating CBD apartments, and we won't have newcomers spending a fortune on properties. I'm not entirely convinced this combo only costs 19% of our GDP.

Consumers have also lost huge amounts of spending power on whatever money they do spend as well. Supermarket shops are probably +20% in price terms of the same basket of goods atm, which will be skewing things given how much of retail trading they probably account for. We almost need a pre-Covid19 baseline for a lot of these things else they will become meaningless.

RBNZ is on the sauce all afternoon like I am clearly.

How on earth did they manage this nonsense? My goodness me are they out of touch. If this ever turns out to be true, I will take TTP out for dinner.

and me as well please. As Bob Jones says, right wing folk are generally better at business but boring as batshit, lefties haven't a clue about how to run an economy but make much more interesting neighbours and dinner companions.

Okay but just so you know, i'm not a leftie or a rightie and I find both very annoying as dinner companions. I reject the left/right paradigm, it was an important issue for industrialisation but does not now represent the main issues we face today, which in my opinion is around globalisation, encompassing all factors that impact a global humanity, such as ecology, global corporations, global resources, global labour forces, trade agreements, immigration etc.

Yup. I'd be classified as a rightie by most people who know me but I'm deeply 'liberal' (in the modern use of the word) on many issues. Typical of a lot in NZ society today. As you say the old tribal grouping definitions are becoming meaningless. But they are still useful when one gets the urge to hurl insults.

Pretty quiet in our normally very busy industrial estate full of manufacturing & logistics co. I wouldn've thought it to be much busier. I was grabbing lunch earlier, asked the chap next to me if they were busy, he looked at me, paused & said he was just now made redundant.

That's grim. Sadly a lot more to come. We have made up our lists of names but are hoping we can get through with under 25% having to be let go.

The Govt bubble is in full float mode. Float it & the people will swallow it. It's hard to believe anything we read these days. I stopped listening to govt's when Auntie Helen took up residence at the turn of the century. She spent a decade building a city. Jacinda is of the same cloth. Wa-Hoo Wellington, & damn the rest. Between the media, the universities & the state we need to factor in an 60-80% bullshit factor into everything we read, see & hear about. That's why interest.co is so good. At least there's some reality in the posts that follow.

@LJM except this 'float " as you call it has had about as much positive acceptance from readers as a turd floating in a swimming pool .

Quite simply , no one is buying this floating turd , and I suggest the Government withdraws the document before it becomes a major embarrassment .

RBNZ seem to have allowed for almost no bankruptcy at all outside of tourism.

And if unemployment triples the assumption must be most of those people weren't contributing to GDP?

Thank you Ralph

The following sectors will almost all see insolvencies rise

Cars sales companies
Small retailers
Clothing and footwear ,lots of to let signs on Ponsonby Road
Personal services such as salons and so on
Retail property landlord's companies
Marginal fuel filling stations
Travel agencies
Immigration consultants
Private colleges for foreign students

I could think of others , but this is just hose that spring to mind

Those fools in their secure jobs at RBNZ and Treasury are so divorced from reality its simply stunning , and to think they came up with this garbage is an indictment on their competence

Sitrep from the Building Materials front. A Mega-Mitre10 pickup of just a few odds and sods: I was one of two (count 'em! 2!) trades pickups in a half-hour span yesterday. Staff:customer ratio about 30:1. Wasted 10 minutes at the Retail pickup as collection points not clearly differentiated, they couldn't find the phoned-in order, and did not have access to the Trades orders (!) ....Shambles.

At a demolition yard, L3 procedures tripled the serve time. Normally in and out in 15-20 minutes: now have to allow the best part of an hour. Staff:customer ratio around 2:1, and on reduced opening hours.

My impression: staff are getting the wage subsidy and are required to turn up, but my Mk I Eyeball estimate of t/o is 20% of normal...

So after 50 -something comments , its evident that readers are not buying this rosy picture / float/ spin/ BS .

Lets hope our esteemed Finance Minister does not rely on this for his mid-term budget plan

Not really sure what you're expecting from him Boatman. He'll allocate some spending, we'll have a big deficit...wages will still be down, debt will still be up, so will unemployment.

@ Indep .............. he must be honest and blunt , not try to sugar coat the mess by quoting rosy figures from RBNZ or Treasury

Going to level 0 (zero) next week sounds good to me and keep borders closed and protect the elderly population.

Isn't that just level 1? If so, yes. Agreed. We should be in level 2 now, as we just work out the gremlins in any tracking system and then level 1 next week.

Far easier to keep the people scared and grateful for it.

How does it know what level 2 is going to be like, when it was still being worked on this week, and hasn't yet been announced?

That was good for a laugh. Nobody is buying new things that they can defer unless there is a sharp discount. Also if the newly unemployed move to spending = 0 on non-survival items then surely that hammers retail as well.

Your access to our unique content is free - always has been. But ad revenues are under pressure so we need your direct support.

Become a supporter

Thanks, I'm already a supporter.