New Zealand
Economic Outlook:
A different world
Sharon Zollner, Chief Economist
April 2020
Follow us on Twitter @sharon_zollner
This is not personal advice. It does not consider your objectives or circumstances. Please refer to the Important Notice.
2
The lockdown is working
First the good news
• But we’ve seen from other countries that getting from
small numbers to ~0 is really hard due to asymptomatic
cases
• The strategy is not eradication (but that would be nice)
• Moving to Level 3 lockdown on 27 April for an initial two
weeks
Source: Ministry of Health, ANZ Research
3
Apple mobility data (April 13)
It should be working!
Source: Apple, Google, ANZ Research
Google mobility data (April 10)
-100
-90
-80
-70
-60
-50
-40
-30
-20
-10
0
Italy NZ UK Australia US Sweden
% d
evia
tion f
rom
baselin
e
Transit Walking Driving
-100
-90
-80
-70
-60
-50
-40
-30
-20
-10
0
Italy NZ UK Australia US Sweden
% d
evia
tion f
rom
baselin
e
Transit stations Retail and recreation Workplaces
4
Percent of activity that can take place
Source: Ministry of Health, ANZ Research estimates
What do the different
levels mean?
• What can happen and what will happen are very
different things.
• As normal in a recession, people will be cautious about
discretionary spending due to lower job security and
house price falls.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Level 4 Level 3 Level 2 Level 1
% o
f a
ctiv
ity
tha
t ca
n ta
ke p
lace
5
ANZBO own activity and employment intentions
Source: ANZ Research
Crash
-80
-60
-40
-20
0
20
40
60
80
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Index
Own activity outlook Employment intentions
• A net 28% of firms reported in the preliminary April
survey that they have already cut jobs compared to a
year earlier (40% have cut staff, 12% have hired
more).
6
Will hit economy unevenlyNet exports
should provide a valuable
offset
• But no one is going to have an easy time of it
• The usual recession dynamics will kick in; feedback
loops between unemployment - spending – housing -
construction
Least affected Worst affected
Grocery retailing
Agriculture
Online retail (from L3 on)
Forestry (from L3)
Food manufact. (from L3)
Construction initially
Tourism
Education exports
Accommodation
Sport / entertainment
Hospitality
Bricks & mortar retail
Commercial property
Housing market
7
Proportion of NZ exports going to China
Source: Statistics NZ, ANZ Research
Opportunity and
vulnerability • Diversification wouldn’t have saved us in any case –
probably even less likely to occur in coming years
• Meat exporters have been very nimble; may need to
remain so
0
10
20
30
40
50
60
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
% r
olling 12m
to
tal
Beef Seafood Dairy Forestry Sheepmeat Wool
8Source: Statistics NZ, REINZ, ANZ Research
GDP levelGDP growth
House price inflation Unemployment
15
20
25
30
35
40
45
50
55
60
65
70
75
88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22
Real
$bn
Production GDP
-25
-20
-15
-10
-5
0
5
10
15
20
25
95 97 99 01 03 05 07 09 11 13 15 17 19 21 23
% c
hange
Quarterly Annual
0
2
4
6
8
10
12
00 02 04 06 08 10 12 14 16 18 20 22
%
-20
-15
-10
-5
0
5
10
15
20
25
30
93 95 97 99 01 03 05 07 09 11 13 15 17 19 21
Annual
%Our forecasts
9
9
NEW ZEALAND’S STRENGTHS AND WEAKNESSES
Strengths Weaknesses
People have to eat
Low fiscal debt start point
Dependence on China?
Natural border
Early lockdown
Dependence on tourism
Household debt
Dependence on China?
Drought
• IMF forecasts developed nations to shrink 6% this year
• Our NZ forecast is -8-10%, reflecting tourism hit
• But net goods exports will provide a valuable offset
10
Consumption takes the biggest hit
• Net export offset is valuable but can’t save the day
-30
-25
-20
-15
-10
-5
0
5
10
15
14 15 16 17 18 19 20 21
Annual avera
ge %
change
Private consumption Investment
Government consumption Net exports
Other GDP
11
Just keep swimming…
• WTI oil contract for delivery in May went deeply
negative on the last day of trading in a game of hot
potato.
• Our commodity prices will fall, but less than most.
50
100
150
200
250
300
350
400
100
150
200
250
300
350
400
450
500
07 08 09 10 11 12 13 14 15 16 17 18 19 20
Index
Index
CRB commodity price index (all commodities)
Bloomberg soft commodity index (RHS)
ANZ commodity price index (world prices) (RHS)
12
Fiscal outlook
Source: Treasury, ANZ Research
A worry for another day
• We see net debt doubling at least, from 20% to 40-50%
of GDP. That’s a lot of bonds to sell.
• We see the RBNZ ramping up quantitative easing to
$60bn or more from an initial $30bn.
• One day we’ll have to repair the fiscal position: higher
taxes, new taxes, superannuation changes, fees-free?
-10
0
10
20
30
40
50
60
72 75 78 81 84 87 90 93 96 99 02 05 08 11 14 17 20 23
% o
f G
DP
Former measure
Current measure with 2019 Half-Year Update forecast
ANZ
13
Quantitative easing in large quantities(ANZ forecast)
• We anticipate the RBNZ QE will get to the same scale as
the Fed after the GFC.
• Sticking to mainstream assets for now – government,
quasi government and local government bonds
14
Global equities
• Really?
• NZ market right up there
Source: Bloomberg, ANZ Research
The power of the printing
presses
700
800
900
1000
1100
1200
1300
1400
Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20
Index 1 J
an 2
019 = 1
000
Euro Stoxx NZ NZX 50 Capital Index
Australia ASX 200 Japan Nikkei
UK FTSE 100 US S&P 500
15
Key unknowns
• Will a vaccine be developed?
• If so, when? How long will it take to roll out?
• Will NZ COVID-19 cases go up or down under Level 3?
• Can we avoid going back into Level 4?
• What will our trade patterns look like at the end of this?
• How will all this government debt be paid back? Can it
be paid back?
• Will all this newly printed money end in an inflationary
fireball?
THANK YOU
Presented by Sharon Zollner
