Economic Weekly: Lockdown diaries… day 13 of lockdown lite

We have previously estimated that the current COVID Alert Level restrictions (i.e. Auckland Alert Level 3 and the rest of the country at Alert Level 2) would reduce weekly GDP by around 8%.  Early data provide some insights into how NZ is responding.  Data from Google show that NZ’s movement in key economic areas (i.e. workplaces, grocery, pharmacy, retail and recreation) is down 20%, but for Auckland movement is down 43% (see chart below).  Traffic data paint a similar story.  Light traffic in Auckland is down significantly (42%) and heavy traffic has also been impacted by the Level 3 restrictions (down 10%).  Throughout the rest of the country, heavy traffic looks largely unaffected and light traffic is only down a smidge (6-10%).  Card spending is down, with the average weekly spend of ASB cardholders down 16% (week ended 22 August) compared to the average weekly spending a fortnight ago, prior to the discovery of the latest outbreak.  Meanwhile, electricity demand appears largely unchanged. The contrast between light and heavy traffic, card spending vs electricity usage, highlights that the brunt of the impact from the current lockdown is borne by the services industries. 

Last week we officially changed our OCR call, along with other NZ bank economists, and now expect the RBNZ to cut the OCR into negative territory next year.  In saying this, we retain some reservations around the effectiveness of a negative OCR and remain unsure the benefits outweigh the costs.  A negative OCR remains a contentious issue internationally.  In our Economic Note released last week, ASB Senior Economist Mark Smith commented that the jury of experts remains out, with the international central banking community split on the effectiveness of using a negative OCR. Furthermore, Mark noted that the European experience does not inspire a lot of confidence. If the RBNZ does cut the OCR into negative territory it will be in direct contrast to the Reserve Bank of Australia, which, so far, remains staunchly against using a negative cash rate.  This contrasting position is likely to have some currency implications, and we have also tweaked our FX forecasts as a result (see Page 2 of the Weekly).