New Zealand Institute of Economic Research (Inc) Media Release, 25 August 2020 Embargoed until 1am, Wednesday 26 August 2020
NZIER forecasts the effects of COVID-19 will persist well into 2023, as the recent re-emergence of COVID-19 in the community adds to the already highly uncertain outlook. The new restrictions have hampered the recovery in activity seen in recent weeks as New Zealand moved down alert levels. Although retail spending had rebounded in the months following the relaxation of lockdown restrictions, the recent increase in spending has yet to make up for the decline experienced during the lockdown.
Businesses are typically more cautious heading into a general election, as uncertainty over the outcome leads businesses to hold off on planning. This time around, the outbreak of COVID-19 has added much more uncertainty for businesses, with hiring and investment intentions falling sharply. We expect businesses and households will remain cautious about spending and investment over the coming year.
The New Zealand outlook remains dependent on three key factors: 1) how well New Zealand can contain the COVID-19 outbreak; 2) how policymakers such as the Government and central bank respond with fiscal and monetary policy support; 3) how the global pandemic evolves in the other major economies.
Border restrictions will continue to have a severe impact on NZ services exports
The ability of other countries to contain or find a treatment for COVID-19 is largely beyond our control but will be a key influence on how quickly borders can reopen and pave the way for a recovery in tourism activity. The re-emergence of COVID-19 in the community means that border restrictions are likely to remain in place for longer, and quarantine requirements will be stricter. These developments will mean a more prolonged severe impact on New Zealand services exports.
Government and Reserve Bank look for new ways to stimulate the economy
The Government and Reserve Bank of New Zealand have increased their stimulus programmes to support the New Zealand economy. This includes extending the wage subsidy scheme and mortgage deferral scheme in light of the re-enforcement of Alert Level 3 in Auckland, while the central bank has expanded its quantitative easing programme and indicated it was actively considering the implementations of a negative OCR next year. We now expect the Reserve Bank will introduce a negative OCR in May 2021, given its ‘whatever it takes’ approach to stimulating the economy.
This edition ofQuarterly Predictionsincludes a special feature discussing the key features of a good quality fiscal stimulus programme.
Quarterly Predictionsis an independent review of New Zealand’s economic outlook and includes comprehensive forecasts of the economy. The full publication is available exclusively toNZIER’s members.
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