Prepare for a “tumultuous” year ahead with the winners being “those that are set up to thrive in a challenging environment”, says ASB.
In its latest economic insight released yesterday, the bank said the New Zealand economy would take a much larger hit than it did during the Global Financial Crisis, despite the efforts of Government to cushion the impact.
“The next 12 to 18 months are going to be tumultuous and there will be winners and losers,” ASB senior economist Mark Smith said.
“The winners will be those that are set up to thrive in a challenging environment. Supermarkets and other essential services are doing a fantastic job in keeping people fed and having their essential needs met.”
Other firms would spot opportunities but a number would have to change their business models.
“There will be a number of industries that have suffered greatly as a result of Covid-19 and the viability of their current business models may need to be tweaked or totally rewired,” Smith said.
When it came to the “new normal”, he saw two potential outcomes longer term.
“First, a return to the status quo, where policy settings are further ratcheted up, growth is being brought forward and the economic can kicked down the road.”
Even so, growth rates would be lower than pre-pandemic times.
“The second outcome would be a fundamental rewiring of the New Zealand and global economies to increase economic resilience,” Smith said.
“It could mean greater restrictions on the movement of goods, people and services. There are additional economic costs to increasing resilience and it will not completely recession-proof the economy.”
Economists at ANZ bank also said yesterday that the coronavirus infection curve should noticeably flatten but the outlook for unemployment was “ugly” and “murky” and the Government’s exit strategy from lockdown was unclear.
ANZ said the unemployment rate could stop short of double digits.
“We expect unemployment to drop more quickly this time… but unfortunately on the other side the usual lag between output rising and a lift in employment is going to be even longer… as uncertainty about the future is extreme,” the bank said.
Unemployment would affect housing, and in turn, retail and service sectors.
Westpac economists in their weekly update said the business finance guarantee scheme, wage subsidy, and mortgage deferrals scheme would allow companies and households to tide themselves over without unduly stressing the Government’s balance sheet.
However, firms would end up in more debt and more focused on reducing it than expansion.
The Government would need to borrow $65bn over coming months and by 2022 the government debt to GDP ratio would rise from 18.5% currently to 40%.
Westpac said the increase was “manageable at today’s low interest rate”.
17 Jun 2020 Consumer confidence lowest since 2009 – Westpac