Pickup better than forecast, says Treasury

New Zealand’s economy has bounced back from Covid-19 more quickly than expected, suggesting unemployment will end up lower than feared even though the global economy is deteriorating.

The Treasury yesterday put out the latest economic update, which broadly said New Zealand’s domestic economy is doing better than forecast in May’s Budget, while the outlook for the global economy “is considerably worse”.

Treasury pointed to a pickup in electronic card transactions, new car registrations, housing market data and signs that the labour market was “stabilising”, with smaller increases in those taking Jobseeker Support than earlier in the lockdown.

While the economy is still expected to take a huge hit in the three months to June 30, it may not be as bad as was forecast in the Budget.

“Overall, incoming data are moving in a direction that suggests the contraction in the June quarter may not be as severe as expected in the [Budget],” said Treasury.

Earlier in the year Treasury put out a range of scenarios, the best of which had unemployment peaking at just under 10 per cent, but possibly climbing much higher. The outlook now is for unemployment to be considerably lower.

“Our most recent estimate is for the unemployment rate to rise to around 7.5 per cent in the June quarter, and to peak at about 9 per cent in the September quarter, down from 10 per cent in the Budget.”

Finance Minister Grant Robertson said Treasury’s view squared with what he was hearing from businesses.

“The feedback I’m getting from the business community is it’s better than expected, but still challenging,” Robertson said.

Treasury said the improvement it was seeing was “welcome”, but warned that the Government should be cautious about assuming it would continue.

Some of the pickup might simply be pent-up demand from the lockdown, and the end of the wage subsidy could have an impact.

The real level of unemployment would not be known for some time, and would certainly continue to rise.