May 27, 2020

New Zealand Institute of Economic Research (Inc)
Media Release, 26 May 2020
Embargoed until 1am, Wednesday 27 May 2020
NZIER Quarterly Predictions, June 2020

NZIER forecasts that the New Zealand economy will recover unevenly from the effects of the COVID-19 outbreak. We expect the decline in activity will be concentrated in the June 2020 quarter, largely reflecting the direct impact of 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.
New Zealand has undergone unprecedented changes since March, reflecting the effects of the COVID-19 outbreak. The effects of the physical restrictions on the New Zealand economy have been sharp, widespread and inevitable. 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. With New Zealand moving down the alert levels, more businesses are reopening and offering a wider range of goods and services.

The recovery will be uneven across the industries

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. In contrast, demand for New Zealand primary exports have increased, reflecting continued robust global appetite for our food production.

There are also sharp differences in these direct impacts across the industries under the different alert levels. Beyond the direct impact of the physical constraints across the industries, our forecasts incorporate an assessment of how much underlying demand will likely be affected.
This edition of Quarterly Predictions includes a special feature in which NZIER uses its computable general equilibrium (CGE) model to provide additional insights into how the impact of COVID-19 will ripple across the different industries and regions in New Zealand.

Unprecedented amount of stimulus unleashed by the Government and Reserve Bank

The Government and Reserve Bank of New Zealand launched an unprecedented set of stimulus measures to support the New Zealand 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. 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.

Quarterly Predictions is an independent review of New Zealand’s economic outlook and includes comprehensive forecasts of the economy. The full publication is available exclusively to NZIER’s members.

For further information, please contact:
Christina Leung, Principal Economist & Head of Membership Services, 021 992 985