WESTPAC SEES ‘SEVERE’ VIRUS HIT

Westpac has joined ANZ, ASB and Kiwibank in forecasting the economy will shrink in the three months to the end of March as a result of the coronavirus.

The bank’s chief economist Dominick Stephens said business and consumer confidence seemed to have taken a ‘‘severe hit’’ and it was now expecting GDP to decline by 0.1 per cent this quarter.

ASB forecast a 0.1 per cent drop almost a month ago, while Kiwibank is forecasting a 0.2 per cent drop. ANZ downgraded its forecast to a 0.1 per cent drop on Monday.

Most eyes are on the shape of further business bail-outs from the Government.

But Infometrics economist Brad Olsen said he was ‘‘a little surprised’’ that the Reserve Bank did not cut the official cash rate (OCR) by at least 25 basis points on Wednesday, after the United States Federal Reserve implemented an unscheduled 50bp cut.

‘‘We have now got a ‘big bad shock’ and seems like everyone else around the world has made a decision that it is time to move.

‘‘I guess the question becomes what will it take for RBNZ to move? And what we are expecting to see – no matter when we next hear from the Reserve Bank formally – is quite a reversal from the optimistic view it took in February.’’

The Reserve Bank appeared to hint on Wednesday that its current intention was to leave any OCR change until March 25. The NZ dollar has since rebounded by 1.5 US cents from its monthly low.

Investor sentiment remains negative, with sharemarkets resuming their strong downward slide yesterday, when the NZX was down 1.4 per cent in lunchtime trading after a 3.6 per cent slide on the US Dow Jones index overnight.

Stephens said the coronavirus was having a more pervasive effect on travel and confidence each week and it now expected the economy to grow by only 1.9 per cent over the whole of 2020.

Now was the right time for the Government to go into deficit and it should focus on helping businesses and households get through the ‘‘inevitable period of disrupted activity’’ with minimal lasting damage, he said.

‘‘We expect house price inflation will stall during the period of virusrelated disruption, but will pick up later in response to even-lower interest rates.’’

Westpac is now forecasting the OCR to fall to 0.25 per cent this year, starting with a 25bp cut at the Reserve Bank’s next scheduled review on March 25.

‘‘We expect house price inflation will stall during the period of virus-related disruption, but will pick up later.’’

ANZ

ASB

BNZ

Kiwibank

Westpac