BNZ economists are warning the risk of recession in New Zealand has moved from “plausible” to “probable”.
They are forecasting -0.1% declines in gross domestic product (GDP) in both the first and second quarters of 2020.
Other bank economists are at this stage only forecasting a contraction in the March quarter, even though their outlooks are darkening by the day.
Finance Minister Grant Robertson on Monday afternoon said Treasury wasn't forecasting a recession.
"This is not a cyclical downturn so the economy won’t react to “standard” cyclical monetary and fiscal policy responses,” BNZ economists said.
“This downturn is fundamentally a supply shock which, in turn, is creating a demand shock. Its root cause is Covid-19 so how the behaviour of individuals, globally, to this shock evolves will ultimately determine the economic path from here on in.
“Policymakers can only hope to smooth the process.
“While all the focus is, naturally, on the future of the New Zealand economy, one shouldn’t ignore the fact that New Zealand’s growth rate was already in decline.
“By the September quarter of 2019, annual GDP growth had fallen to 2.3% from 3.0% a year earlier. As things stand, we are forecasting only 0.3% for Q4 GDP, due for release March 19. That takes annual growth down to just 1.5%.”
Call for freeze on minimum wage increase
ANZ economists are upping the ante, calling for more fiscal stimulus, sooner.
They said scrapping this year’s minimum wage increase should be a “no-brainer” for the Government, which needs to get comfortable borrowing up to $60 billion more than it is.
They’re calling for April 1’s minimum wage rise to $18.90, from $17.70 to be frozen, saying the cost to businesses could lead to staff cuts, if not more businesses failing.
“In this environment, a lift in the minimum wage is more likely to result in higher unemployment than lead to better social outcomes,” they said.
Both Robertson and Prime Minister Jacinda Ardern on Monday afternoon ruled this out. Ardern said it was important for people to keep spending and stimulating the economy.
Govt should be open to borrowing an extra $60b
ANZ economists also said the Government should be willing to borrow the equivalent of 40% of GDP - an increase from the 19.5% of GDP net core Crown debt is currently at.
In dollar terms, increasing the debt limit to 40% would give the Government an extra $60 billion to play with.
ANZ economists said 30% should be the long-term target, as opposed to Robertson’s 15% to 25% range.
They reiterated their call for fiscal policy to step up, particularly as the Reserve Bank (RBNZ) doesn't have much room to cut the Official Cash Rate (OCR), which is at 1%.
They said the Government’s approach to targeting specific industries will become increasingly difficult to implement rapidly as the economic slowdown becomes more “synchronised”.
“The Government needs to consider a broader (macro) policy response, while ensuring it is timely, temporary, and targeted,” they said.
“It might not be feasible to bring existing planned projects forward, but making sure delays don’t slow things down when activity is lifting once again could go a long way.
“Lengthening the infrastructure pipeline could also shore up confidence in the medium-term outlook and thereby encourage hiring and investment.”
ANZ economists also noted that even without major business support packages, etc, debt to GDP will increase as the Crown’s tax revenue falls and benefit payments rise, as the automatic stabilisers being relied on at the moment kick in.
RBNZ unlikely to make an emergency OCR cut on Tuesday
Kiwibank economists have joined ANZ economists in forecasting a whopper 50-basis point OCR cut at the RBNZ's next scheduled review on March 25.
Other bank economists forecast a 25-point cut in March and then another 25-point cut in May.
ANZ economists haven’t ruled out the possibility to the RBNZ making an emergency cut before the scheduled review.
The RBNZ has strongly signalled it won’t make a move on Tuesday when it releases “high level principles for unconventional monetary policy” - a piece of work it’s being working on since before coronavirus.
It said in its invite to an event related to the release of the report: “Please note, the principles and speech will not discuss current economic conditions or the Reserve Bank’s outlook for the Official Cash Rate (OCR). The Reserve Bank’s next OCR decision is scheduled for March 25.
“A small group of stakeholders have been invited to the speech. You are welcome to record and report from the speech, but due to space constraints, we will not have desks, power or audio connections available...”
Govt focussed on cashflow and keeping people employed
Cabinet on Monday afternoon agreed for work to be done on a "business continuity package" - the details of which are yet to be revealed.
The package will be targeted and include a wage subsidy. Ardern didn't say when the package would be introduced.
Current govt support
This is what the Government is already doing to support businesses:
- Continuing to work closely with banks to ensure they are being proactive with their clients
- Improving cashflow for small businesses by signalling action on prompt payment terms and times
- Inland Revenue is entering into instalment arrangements and waiving penalties on a case by case basis where individuals and businesses have had their income and cashflow affected
- An extra $4 million invested in the Regional Business Partner Programme to allow for extra advisors and give them more time on the ground supporting businesses
- Working with Xero to get real-time information about the impacts on business, particularly SMEs.
73 Comments
I'd call an ALL government approach!
It is such a waste to have half of brains in the parliament only sitting there to disagree for the sake of it!
All parties in the parliament need to contribute in a positive fashion to keep everyone in NZ safe and minimise negative impacts from COVID-19.
Clearly you don't understand how a parliamentary democracy works.
An adversarial system ensures different ideas are put forward thereby creating debate and possibly a more creative solution to a problem.
A corrupt dictatorship, like the one you have in China, ensures only that the leaders goals are pursued.
You've got that one right.
Talk to these MP's and you'll find most don't have a brain or clue on the business of running the country. Hardly democracy; more like plutocracy.
As for ANZ and BNZ, most of their commentary is driven by self interest. If this lot had any interest in this country they would half their profits, and increase frontline staff so you don't have to wait 20 minutes in line to get served. The general NZ population are such an apathetic lot, and need to start voting with their feet.
It time this government legislated bank account number portability; just like they did with phone numbers, so its much easier to change suppliers. The banks might then wake up to the poor service levels they are getting away with, employ more locals and keep the account holders money circulating locally; rather than exporting $5 billion profit annually.
When $31Bn was pumped directly into Christchurch did the NZD devalue?
Did it cause any more than very limited local inflation within specific sectors for a relatively short period?
Forget the tropes of classic monetary theory.
Money isn't even real anymore. It's all about private debt, and reducing it's loading on the productive economy.
NO. WAY.
The over-leveraged shouldn't be handed a get-out-of-jail free card in the form of helicopter money.
NO. F******. WAY.
This will get me in the streets with placards.
The prudent ones amongst us aren't at risk.
Everyone (bar the resident spruikers) saw the risk of something like this coming.
If you're over-leveraged then that's on you right now - don't expect a cent of bail out money.
I'm fed up with feeding this moral hazard monster.
Well, if a bail out is politically inevitable, I'd rather it be citizens than banks.
If the cash can't be used to create new credit / leverage (I'm sure this can be managed through some accounting chicanery) then if it takes the steam out of speculation, as above, I'm all for it.
No, as someone else said this will just go straight to asset prices.
It's a bail out for the indebted and worse than that, inflates and de-risks their asset holdings.
It is a terrible idea.
Similar but far worse even than guarantees to finance company depositors that were, let's face it, greedily chasing yields of 8%-10% when the going TD was 6%.
I would be absolutely, beyond septic if anyone seriously proposed this.
This should be the one, the *ONE*, issue that gets anyone under 35 out of bed and on to the streets.
Bailing out the indebted is one massive, unprecedented slap in the face to these generations.
Basically embeds asset price appreciation and socialises any loses.
Absolute BS.
You think they may fail to grasp it, however it seems to me you fail to grasp that the people that vote are going to want a bailout.. I'll be happy if its limited to owner occupiers. Any property that has had a bond lodged against it since last change of ownership, or been listed on AirBnb for more than 30days in the last year and no protection for you. (or some serious evidence needed to prove its no longer a rental.)
CMAT don't worry, it's *highly* unlikely there will be a government bail out of private borrowers. That's just not the way these things work. At best (if you're a borrower) the govt will support programs that enable banks to accept short sales (you sell the home for less than it's worth) or props up bank losses in case of a spate of mortgagee sales. Or the govt supports refi programs with lower rates (which would doubtless apply to new buyers too, and prevent the collapse from being as bad as it could be).
The govt wont be dolling out cash to borrowers to pay down their debts so they can hold their assets more safely. Or did I misunderstand you?
If there is to be a major shift in finance/monetary policy, I'd like to see it is established as a UBI programme, as opposed to a one-off hit or something else like that. Regardless COVID-19, the future of work is less certain in the long run. Time to switch to more progressive policies that smooth what are likely to become far more frequent disruptions in the labour/jobs market, i.e., such as infrastructure failures and climate effects.
Oddly, I reckon these three coalition parties would all support a limited/temporary experimental UBI programme. NZ First knows full well that the universal nature of our super is the reason we have low levels of poverty in our elderly population - Labour and Greens have enough progressives in their caucuses to get it over-the-line. Nothing would change for superannuitants (as they already get one). The unemployed and other beneficiaries would get switched over to a UBI (which would preferably equate to existing NZS payments - which I believe would make for a pay rise) - and WFF and A/S could be scrapped in favour of the NZS-equivalent UBI.
Someone ought to do the numbers.
No I'm not less horrified. That is also a terrible idea.
Everyone has more money chasing the same number of assets.
I seriously think that because that is **exactly** what has happened for the last 10 years.
We are in the most painful part of the crisis.
Where noobs come out of the woodwork with their expert reckons.
Where were you commenting 12 months ago with all your ideas?
Helicopter money has been covered here hundreds of times.
It's a terrible idea. The End.
ANZ's preferred response, and the steps taken by government so far, amount to a very big can being kicked down a road which is mostly behind us.
We all heard of Coronavirus less than three months ago, those businesses that are teetering on failing already have gotten into that position in a very short period. If they are not new businesses, I've got very little sympathy, and see them as simply the slowest buffalo's getting eaten first.
Let capitalism and socialism both do their things, lets support the people, and leave the businesses to stand or fall on their merits and reserves.
How to read sign of Greed at works... when up & up profit? leave everything to 'market' albeit being manipulated, no need interference.
When down & down loss? Govt./tax payers should help - By now, most of the worldwide citizens started to see the same pattern all over repeated - so? This greed eventually getting more visible to spot.
I think if more executives take the cue of Greg Foran and cut their own salary then a stop to increases to those on minimal wages would be more palatable.
However given the damage the banking sector caused the economy in the last recession, I don't think politically the 'look' of those less well off taking the hit again will fly well.
David,
Can we have a sensible item, on what to do under the circumstances we are currently and currency seeing.
For instance, what should a Lotto winner do this week with a million dollar win, or a simple Saver do with 10,000 dollar TD bearing fruition.
Is there a sensible choice, is there any cash sensible options, will anything Oil the works...or are we still gonna be taxed to the hilt on any Oil Futures...etc....will they still keep us pumping up the Government obligations...and their Housing personal debt.
Hi AJ.....I get the cash idea....but a safe hiding place....is a bit tricky....
Butt I could build you a well and a Bore and make a Great Lake...
We are lucky it is raining here in Waikato......so no need here... It was all a theoretical question...I gave up on Lotto and Housey Housey a while back...
Thanks Anyway.
I would, but a ton of gold is a little hard on my pocket....weighs heavily, no use at Countdown, no use at the strip my money shops and gas stations, using credit and debit cards, paying my taxes, plus gst of course to an uneconomic third Party, they call Government Departments and Social Welfare....and of course Bankers share of the rort.
But what the Hell...Gold is so cheap at 1700$ per ounce, maybe I should cut off my wife's wedding ring and go for Holiday in Italy, China, or even Syria.....before I die.
Probably shouldn't get too carried away with the pro stim support, look at what happened when sars panicked everyone, the already loose monetary policy became positively promiscious and partly I think built the bubble that became the gfc...its just a cold people....chill out and buy some cheap shares...I am!
Naah, scare mongering again... these Banks has been infected with DGMs...Banks will join force together to shed couple months back billions & trillions of profit.. to be shared with all in emergency. But wait.. there's more. This Mar 25th the RBNZ will have to do the initial shock & awe by 75 basis reduction, then further in about month later.
10 years ANZ/Nat party property binge party, now? freeze the minimum wage? (which actually supposed to feed into 'rental' increases anyway) - Then more public/tax payers debt.
Here's a thing about 'greed based economics'
- When you in profit, marginalised the poor tax payer
- When you in downward time?, request the poor tax payer by more borrowing.
One thing to avoid, a dent on their 'wealth' - Lobbying the ruling elites is the key, But for how long.. ?
Its OK ...Trump has made America great again...
https://www.zerohedge.com/markets/oil-stocks-rip-higher-after-trump-pro…
These people could fund it easily...
Not to be sneezed though.
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…
Lol's....
1. The First Law of Economists: For every economist, there exists an equal and opposite economist.
The Second Law of Economists: They're both wrong...!
2. Economic forecasters assume everything.... except responsibility
3. Did you know economists have predicted nine out of the last five recessions?
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