Economic fallout ‘yet to come’
New Zealand’s top-50 share index closed down 0.2 per cent yesterday after a morning gain of more than 2 per cent was wiped out during an afternoon slump.
Forsyth Barr institutional equities director David Price said the economy was only just starting to feel the effects of global measures against the coronavirus outbreak.
‘‘What we’ve seen is medical concerns . . . the around coronavirus. Borders are closed, supply chains are affected because getting goods out and into China is pretty hard. The economic fallout is still to come.’’
The Dow Jones industrial average index closed almost 5 per cent higher at 10am yesterday, New Zealand time, after its steep 7.8 per cent drop the previous day.
The Australian market closed 3.1 per cent higher after opening down 3.6 per cent on Tuesday in a wild swing, and but was down 2.9 per cent during late afternoon trading yesterday.
US President Donald Trump said he would take ‘‘major steps’’ to allay market fears by asking Congress for a fiscal stimulus package to include a payroll tax cut, among other measures.
On Monday, Finance Minister Grant Robertson also announced the Government would introduce a targeted wage subsidy for businesses affected by coronavirus, allowing them to keep employees they otherwise couldn’t afford.
Price said that although a recession was likely, its longevity was unclear.
‘‘Economic activity will slow down to negative. There’s risk to unemployment, and low confidence in business, these are things that should be worrying people.’’
ANZ released a preliminary business confidence survey on Tuesday of about 240 business owners.
ANZ chief economist Sharon Zollner said confidence was at its lowest since March 2009, the year following the onset of the Global Financial Crisis.
Price said the drop in the Kiwi sharemarket on Tuesday was in reaction to global markets falling, but noted it had outperformed most other sharemarkets.
‘‘Let’s not lose sight of the fact that we’re going back to where the market was in December. We’re not going back to GFC-type levels. What we’ve done is gone from a breakneck pace of increases to finally giving up a little bit of ground.’’
Price said having a high dividend yield from power companies and low exposure to oil companies and financial institutions had insulated the NZX.
‘‘The price of petrol collapsed because no one’s flying. It’s elastic. But people are still using power, they are still having showers, using electricity.’’