The big picture

Experts predict recovery in as little as a year: New Zealand could lead the world

ASB's quarterly economic forecast, released on 29 May, suggests it will take 12–18 months for regional economies to fully absorb the impact of the pandemic, after which recovery may begin.

The report says New Zealand is entering an economic crisis that calls for decisive and difficult decisions. ASB chief economist Nick Tuffley believes New Zealand must remain flexible and adaptable to navigate the crisis safely.

From an economic perspective, New Zealand will go through 3 stages: weathering the crisis, adapting through transition, and rebuilding under a new normal. The transition may be reflected primarily in two areas:

First, demand for local production is expected to increase. “New Zealand needs to reshape its new normal, placing greater emphasis on reliability and resilience when building supply chains and choosing more local resources, even if costs rise.”

Second, trade will become less dependent on the movement of people, with more goods and services supplied remotely. “The importance of making full use of technology is already self-evident. It will change how we shop, work and live.”

Given that global economic recovery depends largely on countries' ability to respond to the pandemic, Tuffley believes it is too early to discuss future expectations.

However, China's economic recovery may offer a reference point. “China was the first country hit by the pandemic and now appears to be among the first in the Northern Hemisphere to emerge from its shadow. China's GDP growth is expected to reach 1.5% in 2020.”

Overall, economic recovery among New Zealand's main trading partners is expected to exceed the global average. “The market consensus is that New Zealand's trading partners will bottom out this year with growth of -2.5%, before rebounding rapidly to nearly 6% next year.”

The Government's swift response in imposing a nationwide lockdown has put New Zealand in a favourable position for economic recovery. As safety risks recede and the country moves into an economic crisis, widespread changes are expected across society over the next 12–18 months, while economic recovery could also be faster than expected.

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Appendix: Timeline of the New Zealand Government's pandemic response, to the end of May

On 24 January, New Zealand's Ministry of Health established a group to monitor the situation, but said the current risk was low.

On 27 January, public health staff began monitoring flights departing China for signs of the virus.

On 30 January, the Government decided to charter an Air New Zealand flight to evacuate New Zealanders from Wuhan.

On 3 February, the New Zealand Government imposed entry restrictions on foreign nationals travelling from or transiting through mainland China. Those permitted to enter had to self-isolate for 14 days.

On 6 February, a charter flight carrying 193 New Zealand evacuees from Wuhan landed in Auckland. They were quarantined at Whangaparaoa naval base for 14 days.

On 28 February, New Zealand reported its first confirmed case, a person in their 60s who had arrived in Auckland from Iran. The Government began restricting arrivals from Iran.

On 5 March, a third case of COVID-19 was confirmed in Auckland: a man in his forties whose family had recently arrived from Iran. This was New Zealand's first known case of person-to-person transmission.

On 14 March, as the sixth case of COVID-19 was confirmed,

the New Zealand Government announced that everyone arriving in New Zealand, except those coming from Pacific island countries, would have to self-isolate for 14 days. Cruise ships were banned from entering. Strict border measures, including health assessment requirements, were imposed on people travelling from New Zealand to Pacific island countries.

On 15 March, Finance Minister Grant Robertson said the Government expected the virus and travel bans to deal a severe blow to the economy.

3/16: The Reserve Bank of New Zealand announced an emergency cut to the official cash rate from 1% to a record low of 0.25%, a substantial reduction of 75 basis points to support New Zealand's economy against the shock.

3/17: To cushion the impact on New Zealand's economy, the Government announced a NZ$12,100,000,000 package, equivalent to 4% of New Zealand's GDP. It included NZ$5,100,000,000 in wage subsidies, NZ$500,000,000 to support the health system, NZ$126,000,000 to subsidise pandemic-related isolation and sick leave, NZ$2,800,000,000 to increase benefits and the Winter Energy Payment, NZ$100,000,000 for redeployment, NZ$2,800,000,000 in tax adjustments to free up cash flow, and NZ$600,000,000 to support aviation. Finance Minister Grant Robertson said it was among the world's largest economic rescue packages per capita.

On 18 March, for the first time in its history, the Government closed the border to everyone except New Zealand citizens and permanent residents.

On 20 March, the Government introduced a four-level alert system to manage COVID-19. Prime Minister Jacinda Ardern announced that the country was at alert level two, meaning the risk of community transmission was increasing.

On 23 March, New Zealand's case count exceeded 100. Two previously confirmed cases in Wairarapa and Auckland were considered community transmission. Jacinda announced an immediate move to alert level three, indicating a heightened risk that the disease was not contained and community transmission was occurring, followed by a move to alert level four within 48 hours. People were instructed to stay home; schools and other educational facilities would close from 24 March; all non-essential services would close, excluding essential services such as supermarkets, pharmacies and medical clinics; travel would be tightly restricted; and healthcare services would be reprioritised.

3/24: The Government, commercial banks and the Reserve Bank of New Zealand announced that mortgage borrowers and small and medium-sized businesses whose incomes had been affected by the pandemic could apply for a 6-month deferral of principal and interest repayments. The Government and banks also announced a NZ$6,250,000,000 business finance guarantee scheme, offering companies with annual turnover between NZ$250,000 and NZ$80,000,000 low-interest loans of up to NZ$500,000 for up to three years. The Government would bear 80% of the credit risk and banks 20%. The Reserve Bank also decided to lower banks' core funding ratio from 75% to 50%, further helping them provide credit.

3/25: At 11:59 pm, New Zealand entered alert level four and the entire country went into self-isolation. The Government passed emergency legislation immediately freezing rent increases for 6 months. Landlords could not terminate tenancies during lockdown, with this restriction lasting 3 months; relevant notices already issued but not yet effective were invalidated; tenants could still terminate tenancies as usual; and tenants could not be evicted for non-payment of rent for up to 60 days.

3/27: Changes to the wage subsidy scheme announced on 17 March took effect. These included merging the sick leave and wage subsidy schemes to prevent people receiving both; requiring employers to make their best efforts to pay employees 80% of their previous earnings; and requiring employers to commit to retaining employees throughout the subsidy period. The changes were estimated to increase the potential cost of the wage subsidy to NZ$8,000,000,000–12,000,000,000.

3/28: Inland Revenue announced relaxed tax payment arrangements for companies during the pandemic. They could apply for instalment payments or relief; some tax filing deadlines were extended; and penalties and interest could be waived for those unable to pay on time.

4/1: The Ministry of Health injected NZ$15,000,000 into general practices nationwide, with a further NZ$10,000,000 each week during the four-week lockdown. Funding would be allocated according to each practice's number of enrolled patients.

4/3: The Finance Minister announced amendments to the Companies Act, saying they would help struggling businesses. These included allowing businesses to place existing debt in hibernation until normal trading resumed, and providing a “safe harbour” from insolvency liability for directors of companies facing liquidity problems. Other amendments included allowing electronic signatures where necessary; empowering the Registrar of Companies to defer annual results and annual return filings; and allowing companies discretion over their constitutions or rules because of the pandemic.

4/14: The Government announced a 133,000,000 support package for tertiary students. It applied to all full-time domestic students studying at universities, polytechnics or private training establishments that year, whether already enrolled or planning to enrol. Measures included increasing course-related borrowing, providing up to 8 weeks of support for students unable to study online, and ensuring students could obtain partial tuition fee refunds if the pandemic interrupted their courses.

4/15: The Prime Minister announced that all public sector chief executives, government ministers and she herself would take a 20% pay cut for the next six months, saving the country approximately NZ$2,000,000.

The Finance Minister also proposed further measures to help small and medium-sized businesses affected by the pandemic, including a new tax loss carry-back scheme estimated at about NZ$3,100,000,000. The measures included the ability to carry back tax losses; changes to tax loss continuity rules; greater flexibility over statutory tax deadlines; support for commercial tenants and landlords; and further business advisory support.

4/17: ACC announced it would defer issuing invoices totalling NZ$900,000,000 to businesses and self-employed people for three months, helping ease pandemic-related cash flow pressures.

On 20 April, the Prime Minister announced that alert level four would continue until 11:59 pm on 27 April. New Zealand would then remain at alert level three for two weeks.

4/21: The Reserve Bank of New Zealand opened a 7-day consultation on removing LVR restrictions as part of its macroprudential policy to maintain financial stability. The proposal sought both to stabilise existing house prices and reduce homeowners' losses, and to lower barriers to buying a home to encourage more people into the market. If the restrictions were removed, the Reserve Bank would monitor commercial banks' related actions over the following 12 months and review feedback to decide whether to reinstate them in future. The policy ultimately took effect on 1 May for at least 12 months.

On 27 April, the country moved to alert level three at 11:59 pm.

On 28 April, takeaway fast-food businesses were allowed to operate under strict physical distancing measures.

Minister for Social Development Carmel Sepuloni announced measures already under way and others soon to launch to help New Zealanders who had lost jobs because of the pandemic find new work. These included establishing 35 employment centres nationwide, offering telephone and online advice during alert level three and face-to-face services during alert level two; an online tool on the Ministry of Social Development website to match jobseekers with suitable potential employers; online employment training; and a “Keep New Zealand Working fast-track service” for benefit applicants hoping to return to work quickly。

5/1: The Finance Minister announced interest-free loans to support small businesses, while saying Inland Revenue would audit businesses applying. The Small Business Cashflow Loan Scheme would provide companies employing 50 or fewer full-time staff with loans of NZ$100,000, plus an additional NZ$1800 per full-time employee. Loans repaid within a year would be interest-free. The money could cover rent, insurance, utilities, council rates and supplier payments.

5/2: The Government announced a NZ$20,000,000 fund to help tertiary students access digital devices and internet connections for distance learning during the pandemic.

5/4: New Zealand reported no new COVID-19 cases for the first time since 16 March.

The Government announced that Cabinet had approved amendments to the Resource Management Act the previous week, with legislation expected to pass in June. The amendments would empower the Environment Minister and an expert panel to decide which projects could receive fast-track approval. Reportedly, all “shovel-ready” infrastructure projects would be eligible, with approval possible in as little as 25 days.

5/7: The Government allocated NZ$25,000,000 to support research and development of products to combat the pandemic. Funding would go to projects and ideas expected to deliver results within 6 to 12 months. Research already funded included a new ventilator, a thermal imaging screening device and early vaccine research.

5/12: The Treasury and Ministry of Health announced NZ$3,920,000,000 in additional health funding over the next four years, equivalent to an extra NZ$980,000,000 annually for district health boards. A further one-off NZ$282,500,000 over three years would deliver planned healthcare, including about 153,000 operations, radiology and ultrasound examinations, and specialist appointments postponed because of the pandemic. Another NZ$313,500,000 annually, totalling NZ$125,400,000 over four years, would support the management of planned healthcare to accommodate population changes and rising prices. This was the health system's largest funding allocation in 10 years.

5/13: The Reserve Bank of New Zealand said it remained open to further cuts to the official cash rate (OCR), potentially taking it below zero if necessary. Earlier that month, many banks had announced two-year mortgage rates below 3% for the first time. The Reserve Bank said mortgage and retail interest rates should fall further, although depositors would also earn less interest on savings. It also announced an increase in its quantitative easing budget from NZ$33,000,000,000 to NZ$60,000,000,000 to stimulate economic growth.

5/14: On the first day of alert level two, there were no new cases for the third consecutive day. The Finance Minister delivered the 2020 Budget, themed “Rebuilding Together”, allocating a further NZ$50,000,000,000 to rescue the pandemic-hit economy. This brought total government spending related to the coronavirus pandemic to NZ$63,000,000,000, of which about NZ$20,000,000,000 remained unallocated.

On 19 May, the Government launched a COVID-19 tracing mobile app.

5/25: The Government announced a new benefit policy costing about NZ$570,000,000. People who lost jobs because of the pandemic could receive tax-free weekly payments of NZ$490 for former full-time workers or NZ$250 for former part-time workers, for 12 weeks. Students who lost part-time jobs could also apply, but eligibility was limited to New Zealand residents and citizens. The scheme would take effect on 8 June.

5/26: The Government decided to establish a NZ$1,000,000 hardship fund to help international students experiencing financial difficulty, including through reduced part-time earnings. Applications opened on the 21. Relevant education providers and organisations could apply for up to NZ$20,000 excluding GST to provide eligible international students with direct financial assistance or other support, including food or help with living costs. Individual students could not apply to the fund.

5/28: The Government announced more than NZ$70,000,000 in funding for the arts and cultural sector affected by the pandemic, including NZ$18,000,000 to sustain operations at the national museum, Te Papa.