Economic rebound faster than expected

Finance Minister Grant Robertson says the economy is bouncing back quicker than expected from coronavirus lockdowns and the Government now intended to ‘‘respond as necessary’’ to developments.

‘‘We have seen from ‘real-time’ data such as heavy and light vehicle movements, retail card sales and electricity demand that we are returning to pre-Covid levels in most of those areas,’’ Robertson told a webinar hosted by Bloomberg.

But against that, the global environment had got worse, with the virus ‘‘growing not slowing’’ in many countries, he said. ‘‘We do now have to bear in mind that perhaps some of the improvements we had seen in some of our trading partners are now not coming to fruition.’’

Robertson said unemployment was now expected to peak at ‘‘around 9 per cent, rather than just under 10 per cent’’. But there are concerns unemployment may spike after the second, $3.2 billion round of wage subsidies comes to an end.

The extra eight weeks of wage subsidies can be claimed by firms that are still experiencing a 40 per cent drop in business during a 30 day period between May 10 and when applications close on September 1.

‘‘Clearly, when the further wage subsidy extension comes to an end, there will be another round of decisions to be made,’’ Robertson said.

Treasury, Statistics NZ and the Reserve Bank have devised a new index of economic activity that reflects consumer spending, unemployment, job

Grant Robertson Finance Minister

vacancies, traffic volumes, electricity generation, the economic outlook and manufacturing expectations.

It was down 6.5 per cent in May, when compared to last year, following a 19 per cent drop in April. But Robertson said there was no need for ‘‘a brand new vision in terms of where the New Zealand economy should go’’ during the recovery from Covid-19, as the Government already had one.

‘‘Our economic plan that we released last year outlined very clearly that we wanted to be more productive, more sustainable and more inclusive, and make sure we are transitioning to a lowcarbon economy.’’

Agritech, the digital sector, advanced manufacturing and clean energy were among the sectors where the Government saw opportunities, he said. ‘‘Those industry transformation plans will be rolled out over the next couple of years.’’

Exporting milk powder to China ‘‘cannot be the ‘be all and end all’,’’ he added in response to questions.

The Government still had $18.3b of funding that it had yet to allocate from the $50b Covid spending package that it announced in the May Budget, Robertson told a select committee on June 17.

Robertson indicated it wanted to keep its options open with regard to that potential spending. ‘‘What we will do is respond as necessary.’’

Gaps might need to be plugged, for example as a result of lost income from fuel excise duty, while the Government also faced cost pressures paying for the managed isolation of arrivals and in the health system, he said.

‘‘I have committed to ensure there is a buffer there to be used.’’

ANZ chief economist Sharon Zollner agreed the ‘‘bounce out of lockdown’’ had been faster and more vigorous than widely expected. But the recession that would result from the closed border was ‘‘only just starting’’, she said.

Bloomberg economist James McIntyre said Australia and New Zealand were in different positions when it came to the implications of travel restrictions.

‘‘From the Australian perspective, for every dollar spent onshore by foreign tourists, Australians spend $1.50 overseas. So that ‘trapping’ of consumption is keeping Australians at home and helping to plug some of the gap.’’

That had contributed to an increase in retail spending in Australia, he said.

Unfortunately, the same could not be said for New Zealand, where international tourism was more important, he said.

‘‘What we will do is respond as necessary.’’