ANZ predicts 240k more out of work
An end to fees-free tertiary education and an increase in the pension age may be needed as New Zealand recovers from an economic hit that could push 240,000 more people into unemployment, ANZ economists say.
The banking group’s latest Quarterly Economic Outlook report says the economic slump New Zealand faces is ‘‘truly enormous’’.
At Covid-19 alert level three, which New Zealand will shift to next week, about 10 per cent to 15 per cent of work would still not be able to happen.
Productivity would be diminished among businesses that could operate, because of distancing requirements.
‘‘Overall, we estimate that total GDP is 30 per cent to 40 per cent lower under level four lockdown conditions and 15 per cent to 20 per cent lower under alert level three, adjusting for losses in productivity,’’ the report said.
‘‘A key question now is how long we will be in alert level three for.’’
The Government will review the alert level after two weeks.
ANZ said it was operating on the central assumption that level three would remain in place for a month with some degree of restrictions in place for the rest of the year at least.
‘‘Based on this and our understanding of activity under the various alert levels, we expect GDP to fall 22 per cent to 23 per cent in the first half of the year and to be 8 per cent to 10 per cent lower over 2020.’’
The ANZ report said it expected unemployment to reach 11 per cent, despite the stimulus provided by the Government’s wage subsidy scheme.
That would mean an extra 240,000 people out of work.
‘‘This is expected to be seen alongside a fall in labour-force participation. If that did not occur, the increase in unemployment would be even greater.’’
It would take time for the labour market to recover, which would put pressure on household incomes and increase consumer caution. Reduced employment prospects would limit gains in house prices.
‘‘House prices are expected to fall significantly, as typically happens in economic downturns. House prices normally swing much more than GDP does.
‘‘At this stage we expect to see house prices drop 10 per cent to 15 per cent, with demand under considerable pressure. There is downside risk to this, particularly if credit becomes squeezed.’’
ANZ chief economist Sharon Zollner said Kiwibank chief economist Jarrod Kerr’s suggestion of $1500 stimulus payments was interesting but potentially not as targeted assistance as the Government might want.
She said net core Crown debt was expected to lift to 40 per cent or 50 per cent of GDP.
‘‘It’s important not to go down the path of austerity for austerity’s sake.’’
Sharon Zollner ANZ chief economist
‘‘Fiscal consolidation may require a reduction in entitlements, such as winding back fees-free tertiary education or lifting the eligibility age for NZ Super or introducing means-testing. Tax rates may also increase, or new tax types – such as on capital gains, wealth, or inheritance – could also be introduced.
‘‘But it’s important not to go down the path of austerity for austerity’s sake. Following the global financial crisis, the pursuit of fiscal consolidation saw spending on key infrastructure dwindle on a per capita basis, leading to the infrastructure deficit that we know all too well today.’’
Zollner said the Government would be reluctant to suggest to people that their incomes would drop or taxes increase, in case it drove them to spend less money than they otherwise would.
She said it was a problem ‘‘for another day’’. Because New Zealand had entered this downturn with government books in good shape, that day was further away than for some countries.
‘‘We expect to see an export-led recovery, supported by enormous fiscal and monetary stimulus.’’
Ratings agency Fitch expects the country’s fiscal balance to drop to a 4.8 per cent deficit in the year ending in June 2020.
Fitch said it also expected a poor outlook for the economy to weigh on the amount of tax the Government could collect.