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Uneven path to recovery looms

The New Zealand Institute of Economic Research predicts the decline in business activity to hit hardest in the June 2020 quarter.
Posted on 27 May, 2020
Uneven path to recovery looms

Experts are warning of an uneven recovery for the economy from the effects of the Covid-19 pandemic, with weaker consumer and business confidence set to curb spending.

The New Zealand Institute of Economic Research’s latest Quarterly Predictions says there have sharp differences in the impacts suffered by different industries because of the outbreak and the resulting lockdown.

Christina Leung, principal economist, explains that the NZIER expects the decline in economic activity will be concentrated in the June 2020 quarter, largely reflecting the direct impact of the government’s containment measures. 

“Despite a forecast bounce-back in activity from the June 2020 quarter low, NZIER expects activity to remain below levels forecast in the absence of the outbreak, as weaker consumer and business confidence weigh on spending,” she adds.

Leung, pictured, describes how New Zealand has undergone unprecedented changes since March as a result of the novel coronavirus outbreak. 

“The effects of the physical restrictions on the New Zealand economy have been sharp, widespread and inevitable,” she says. 

“Given the relatively short amount of time spent in lockdown reflecting our success in eliminating Covid-19, the New Zealand economy looks increasingly likely to be at the optimistic end of the scenarios that had initially been considered by the Treasury.

“However, the effects on the New Zealand economy have been uneven across the industries. Border closures and travel restrictions have had a severe impact on tourism activity. We expect these effects to persist through to 2021.”

The NZIER has also looked at the unprecedented set of stimulus measures from the government and Reserve Bank of New Zealand to support the economy as it reels from the effects of the outbreak. 

“The RBNZ undertook an emergency 75 basis points OCR cut and launched a large-scale government bond purchase programme, which increased to a potential of $60 billion,” Leung adds. 

“It also opened the door to the potential for a negative OCR. While we recognise the risk of a negative OCR, we consider further expansion of its bond purchase programme a more effective means of supporting the economy.”