New Zealand is emerging out of lockdown into a very different world to the one we all heralded in at the start of the year, and although for us the health crisis may be easing, the economic one is only just starting.
The latest ASB Quarterly Economic Forecast shows by responding to the fast-breaking crisis at a furious pace, New Zealand is hopefully in a better position to return to normality sooner than other countries. However, ASB chief economist Nick Tuffley warns this may still be a way away.
"Economically, we see the country as going through three stages: surviving the crisis, adapting in a period of transition, reimagining itself into the new normal," says Tuffley.
"The crisis period is where we are now: surviving the impacts of the lockdown and reopening when ongoing restrictions, behavioural changes, and potential for spending caution mean revenue streams are highly uncertain. It has been – and will continue to be – a time of swiftly making hard decisions," says Tuffley.
According to the ASB Quarterly Economic Forecast, the transition period could take 12 to 18 months, with a number of uncertainties likely to be resolved during this time. Tuffley says persistent and permanent shifts in behaviour will become more apparent, and this will be a period in which being adaptable and flexible will be important.
"Finally, New Zealand will reimagine itself in what will become the ‘new’ normal. Supply chains are likely to focus more on reliability and resilience, favouring local sources more, even if at higher cost.
"Trade will be more focused on goods and on services that are more provided by remote and less reliant on people movements. The importance of fully leveraging technology has been starkly highlighted, and will change how we shop, work, and influence where we live,” says Tuffley.
The COVID-19 pandemic has severely disrupted economic activity over the early months of 2020, pushing the global economy into recession. The magnitude of economic decline over 2020 will likely depend on each country’s ability to contain and manage the outbreak. NZ is on track to continue to gradually lower the Alert Level (sooner rather than later, hopefully) which may even see economic activity recover faster than we have pencilled in over 2020.
NZ’s key trading partners are overall expected to fare a little better than the global average. The consensus sees growth in NZ’s trading partners bottoming out around -2.5% for this year, before a rapid recovery to nearly 6% in 2021.
"It's too early to judge how actual global activity is running relative to our expectations. Amongst other things, we’ll be looking at China for a guide to how quickly economies can recover post-lockdown. China was obviously first to be hit by COVID-19 and looks to be coming out the other side in a stronger position than most - we expect Chinese GDP growth of 1.5% annually for 2020.
The latest ASB Quarterly Economic Forecast will be available online at https://www.asb.co.nz/documents/economic-research/quarterly-economic-forecasts.html
Other recent ASB reports covering a range of commentary can be accessed at our ASB Economic Insights page: https://www.asb.co.nz/documents/economic-insights.html