Economy charged into lockdown

It may feel a bit like looking through the rear-vision mirror but indications are the economy was on a charge up until lockdown hit.  Q2 GDP figures out on Thursday will give the full picture.  We expect a 1.5% quarterly increase will be reported.  Retail spending, accommodation (helped by the trans-Tasman bubble), manufacturing, logistics and various services all played a role in supporting huge momentum over the first half of the year.  And watch for ANZ’s preliminary business confidence survey results this afternoon for a gauge on how businesses view the impact of this lockdown.

Housing has been one driver of the economy this year, and the latest ASB Housing Confidence Survey showed people’s expectations of house prices have been dampened only slightly by factors such as tax changes, tighter RBNZ lending restrictions, and anticipated mortgage rate increases.

Retail spending had been steadily growing until August, when it took the expected hit from lockdown.  Retail transactions on electronic cards plunged 20% in August.  Consumables sales rose 9.3%, officially confirming what the bare supermarket shelves told us.  But with two toilet paper suppliers apparently set to pull out of NZ, perhaps we can rationalise to ourselves our toilet paper purchases. 

Tomorrow marks four weeks of lockdown conditions of various strictness for this outbreak.  The 4pm media conference today will bring a decision on any easing of Alert Levels for Auckland or the rest of the country.  Judging from the epidemiologist pundits, there is every chance that the current strict conditions get extended further, given the continued run of mystery cases that are turning up.  If Level 4 conditions get extended, that will take Auckland towards uncharted territory.  Last year’s main lockdown had 33 days at Level 4 and 49 in total at Levels 3 and 4.  A further week of Level 4 would take Auckland to 35 days before then presumably some period at Level 3.

We all need to hang in there in our bunkers to stamp out transmission, even if it does mean reaching for the sourdough recipes to get a break from scones.  The alternative would be overwhelming the health system.  But the longer strict conditions remain, the greater the prospect of scarring to the economy through damage to businesses.  The Government has announced additional business resurgence payments to help cushion the blow, but should remain alert to how it can further help out where the blowtorch of lockdown is felt most acutely.  And no-one should be shy about taking up any form of support that will help get them through.  Hang in there. 

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Mark Smith

Senior Economist

Mark joined ASB in 2017, with over 20 years of public and private sector experience working as an economist in New Zealand and the UK.

His resume includes lengthy stints at ANZ and the Reserve Bank of New Zealand, and he has also worked at the Bank of England, HM Treasury and the New Zealand Transport Agency. Mark's areas of specialisation include interest rate strategy, macro-economic analysis and urban economics.

Born and bred in the Waikato, Mark studied at Waikato University where he graduated with a Master of Social Sciences, majoring in Economics.

Mark's key strengths are the ability to use his extensive experience, inquisitive nature, analytical ability, creativity and pragmatism to dig a little deeper and to deliver common sense solutions to tackle complex problems.

When not at work Mark likes to travel, keep fit and spend time with his friends and family.