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Birds Eye View

Autumn 2020

Incorporating BERL Forecasts (Vol LXIII No 1)

01. The front page

The World Health Organisation reports that the COVID-19 outbreak is now a pandemic. The most valuable commodity required by all now is a clear head. Kneejerk responses based on uninformed inquiry leading to frenetically formed prescriptions are, at best, unhelpful. At worst, they are downright dangerous. The suggestion by some that the minimum wage increase should be delayed or deferred falls into this category. Such a suggestion is yet another example of decisions being made in the absence of those most affected.

If we are serious about rebuilding and maintaining any sense of trust and respect in institutions and the social licence to operate that businesses enjoy, then we cannot continue to exclude the vulnerable and least resilient from our decision making processes. If economists are genuine about the importance of social capital to a well-functioning economy delivering improved productivity and profits alongside wellbeing outcomes, then we cannot expect the vulnerable and least resilient to bear the burden of this latest wero (challenge).

And yes, there are valid concerns about businesses financial viability in the face of a COVID-19 downturn in demand. But there are other policies that can and should be used to allay those concerns (more below). Most importantly, the COVID-19 outbreak cannot be used as an excuse to yet again delay or defer transformation efforts towards developing a productive sustainable inclusive economy.

So … firstly, inhale deeply.

Secondly, exhale deeply.

Thirdly, inhale deeply.

Fourthly, exhale deeply.

Thereafter … repeat (twice).

Now, assisted by clear heads, we can critically assess that the nation and the world face a public health crisis. Yes, there will be economic consequences – but these are secondary to the primary challenge of securing the health of individuals, families, and communities. Medical personnel, institutions, and authorities must be reassured that financial considerations will not get in the way of the provision of the necessary medical services.

Thereafter, we must concede governments that global authorities are limited in their ability to fully control these economic consequences. Because of the highly uncertain information we have about the likely extent, spread, and length of the public health crisis, it would be foolish (and not that helpful to anybody) to present any short-term economic forecast with any sense of probability. For this reason we have not delivered a detailed short-term projection of the economic outlook in this issue. Rather, we focus on what we know, and actions that should be taken.

In a nutshell, a clear head is paramount. Thereafter, communicate with clients, your suppliers, employees, banks and investors, so that you and your team are fully aware of any measures or supports that are available – or need to be put in place.

Clearly, there are policy options – that differ depending on the state of each nation’s economy –available to mitigate some of the consequences. So, while we hesitate to suggest the likely short-term path of the economy, we can note the importance of understanding the situation of the New Zealand economy and so relevant policy options to mitigate the economic consequences.

Source: Reserve Bank of New Zealand

In particular, it is critical that the New Zealand Government is indeed uniquely placed to respond – it has historically low debt, it can borrow at historically low interest rates. While economic and employment growth has slowed in recent quarters, this was expected – and was in line with a global slowing. Nevertheless such growth remained favourable compared to other OECD countries and has contributed to the Government’s above-forecast Budget surpluses.

In this context, whether the nation slips into economic recession or not is for all intents and purposes academic. The measure of GDP and whether it grows, or not, is not the economic priority at present. There will be subdued and uncertain demand and disruption to supply chains. The priority is, without doubt, to minimise the impact on jobs and on households’ incomes. Because losing jobs (and the consequential impact on households’ incomes) is what can do the most damage, both in the short term and in the long term.

This requires a combination of:

  • Targeted cash flow support – wage subsidies for selected sectors (e.g. retail, hospitality, tourism, forestry)
  • Consider suspension of provisional tax and GST payments to IRD for selected sectors
  • Enable workers to take sick leave above their statutory entitlement without loss of pay
  • Prompt payment by government, including all agencies as well as local government, of invoices to NZ businesses
  • Offer immediate income relief and alternatives to newly unemployed or displaced workers
  • Underpin job training and support efforts – reinstate training incentive allowance and finance industry training institutions to ensure they are able to offer more places
  • Accelerate the implementation of the $12 billion infrastructure package announced in December
  • Implementation of the Welfare Expert Advisory Group (WEAG) recommendations on main benefit levels.

Some have called for the Reserve Bank of New Zealand (RBNZ) to instigate an emergency cut to interest rates. While this course has been followed by other central banks, we are not convinced of its usefulness in the New Zealand context. It may help, but a higher priority for the RBNZ is to ensure cash flow to businesses and households. As kaitiaki of the financial system, the RBNZ needs to liaise with banking institutions and secure favourable treatment for businesses and households caught in jeopardy.

Source: Reserve Bank of New Zealand

There are admittedly some shortcomings. Relief for businesses in the form of wage subsidies or tax holidays may not be passed on to those most needed. That is a risk. But most businesses, like most workers, are not interested in rorting the system. Most will act consistent with their unwritten objective to stay in business and employment. Assistance for the many should not be curtailed due to the adverse actions of a few.

Similarly, WEAG recommendations – in their report Whakamana Tāngata – recognise that most individuals reliant on welfare payments find themselves in such a position through little fault of their own. Treating those in need with respect by reinforcing trust in a social security system that serves all who need it will ultimately pay dividends in long-term wellbeing outcomes of inclusion and engagement. In contrast, the costs of disconnected, disengaged, and excluded communities are already large, and easily magnified.

A more short-term consideration in lifting main benefits will be to reduce the ability of unscrupulous lending companies to profiteer from the increased need for cash. In this context, MSD must also pro-actively enable access to hardship grants.

As to global economic turmoil, again a clear head is required. While headlines shout of millions and billions wiped from stock market valuations, the context that large gains had been made over previous years and that some correction has been long awaited. For example, despite the ructions of the past week, the DOW, the DAX, the Nikkei, the Sensex, and the NZX50 all remain well above their values of a decade ago. Indeed, their latest closing (12 March) levels all show an at least six percent per annum increase on that of a decade ago. A correction was always on the cards. However, the timing of the oil price volatility is unhelpful.

Source: NZX50

None of the above commentary should be seen as underplaying the severity of the economic situation. Some will lose their jobs. Some will lose some (or much) of their life savings. But, as implied above, the ability of the New Zealand authorities to control or avoid some of these consequences is limited. Efforts therefore should focus on those consequences which can be mitigated. And, in particular, on those who are already vulnerable and least resilient.

Further, none of the above commentary should be seen as underplaying the need for a flexible and fleet-footed response from government. Three months ago, a $12 billion infrastructure package was announced. Three months later, a rapid acceleration of the implementation of this package is needed. There is a risk that this package will be stalled as ‘business cases’ are prepared. It is now time to shelve the need for ‘business cases’. As long as projects are assessed to contribute to improved wellbeing outcomes and such assessments pass the sniff test, the Government needs to be courageous and press go now. The shovel-ready projects have remained shovel-ready for too long. Now would be a great time to start shovelling.

02. The temperature

What you must know
New Zealand sales climate
New Zealand job climate

Fiscal and monetary policy

  • Budget 2020 likely to be significantly expansionary
  • Getting spending out the door to be accelerated
  • Low interest rates here for the long haul
What you should know
Australia sales climate
United States sales climate
Asia sales climate
Europe sales climate
Wage growth
Investment plans
What we don't know yet


  • To state the obvious, COVID-19 is front and centre.
  • Will the authorities’ fiscal responses will be sufficient to maintain some level of economic activity?
  • Or will the voices of austerity continue to hold sway?

Monetary policy stance

  • How will RBNZ ensure cash flow?
  • How will RBNZ work with Government to ensure fiscal policy measures are effective?

Domestic factors

  • How quickly can the $12bn infrastructure package be activated?
  • Will Budget 2020 be courageous and totally ignore the Budget Responsibility Rules?
  • Will Government action be sufficient to forestall potential employment losses?

03. People resources

The bald facts are:

  • Unemployment (December 2019, seasonally adjusted) at 4.0%; down from 4.3% a year earlier.
  • Underutilisation (December 2019) at 10.4%; down from 12.8% a year earlier.
  • Employment growth (QES December 2019 on December 2018) at 0.9%; down from 1.3% a year earlier.
  • Labour force participation rate (December 2019) at 70.5%; marginally up from 70.4% a year earlier.
  • Growth in total weekly earnings (December 2019 quarter on December 2018 quarter) at 3.6%; up from 2.9% a year earlier.
  • Net migration (12 months to December) at +43,760; down from +49,380 a year earlier.


It seems highly probable that the rate of growth in the New Zealand economy will decrease further as a result of the COVID-19 outbreak. At the time of writing, New Zealand has had few cases, but the outbreak will inevitably have a negative effect on our exports, including tourism earnings. Trade with China is already being adversely affected, and there is concern that slower economic growth associated with a reduction in trade will cause employment to grow more slowly than it is already.

Source: Statistics New Zealand

Even worse, a widespread outbreak in New Zealand would undoubtedly magnify the slow down. Added to public health fears, there is a clear risk that employment, which was growing at around three percent per annum until mid-2017, will start to fall.

Employment is currently growing at an annual rate of around one percent a year, and the major business surveys, e.g. the QSBO and the ANZ Business Outlook, were indicating that, even before COVID-19 was widely known about, employers were cautious about taking on additional labour. 

Under these circumstances, the undoubted top economic priority for the Government is to minimise the loss of jobs. Businesses hit by a sudden reduction in their cash flows will seek to contain their costs, and one of the easiest ways for them to do this will be to lay off their workers. 

The Government needs to ensure that businesses do not go down this road. Fortunately, there are effective measures it can take to ease the pain. Responding by funding major capital projects may be considered, but these are likely to take too long to have an effect. Putting money directly into individuals’ pockets will be quicker and more effective. Options for the payment of employment and wage subsidies to businesses to enable them to keep paying their staff must be rolled out immediately. Other measures, such as making it easier to take sick leave and quicker for laid-off workers to obtain benefits will also help.

Lessons might also be learned from the stimuli in response to the Global Financial Crisis in 2008 and the Canterbury earthquakes in 2011.


Migrant flows into New Zealand have been easing back from the peak of about 60,000 people net inflow in 2016. In 2019 there was an estimated 48,000 net inflow of other than New Zealanders, and a net outflow of 9,000 Kiwis. So the net increase in population from migrant flows was about 39,000 people.

Source: Statistics New Zealand

Projected flows of migrants to and from New Zealand for whatever reason are one factor which will be thrown out the window by the COVID-19 outbreak. We might expect fewer Kiwis to want to emigrate from New Zealand to uncertain virus situations in other countries, and some overseas Kiwis may return. As the number of affected countries increases, we can expect more restrictions on entry of NZ non-citizens at our borders.

An idea of the previous pattern comes from the net flows in calendar 2019. There was a net inflow of about 8,000 people from Australia and Oceania. There were about 21,000 net arrivals from Asia, including 7,000 each-from India and Philippines and about 2,000 net from China. There were about 5,000 from Europe, and 3,000 from the Americas. There were nearly 11,000 from South Africa continuing the strong trend of increase in recent years making up the rest of the 48,000 net inflow.

To date the official data doesn’t show the level of decrease in arrivals, but given the situation in China, and Korea, we could expect net arrivals from Asia to be halved for the next six months, reducing the net inflow by 5,000. So far there is no sign of Kiwis (or Aussies) flooding back from Australia, although the impacts of the bushfires may increase that flow by a few thousand.

The other flow is the Kiwis leaving and we think that outflow of 9,000 could zero out or become a net inflow of, say, 5,000.

Weighing it up this indicates no substantive change to the impact of overall migration flows on the resident population. The net overall increase of 39,000 in 2019 could reduce to the low 30,000s in calendar 2020 with some firming of these numbers later in the year.
Similarly, the reduction in the number of international students will be negative, but should not be a major economic impact. However, the loss of these tuition fees by the universities, polytechnics and other training establishments, and some schools can harm their funding models. Direct government support to ensure the financial situation of these institutions are not jeopardised should be rolled out on an as-and-when-needed basis.

Some idea of the orders of magnitude of these impacts is that in recent years there have been about 25,000 to 26,000 student visas issued per year, whereas an earlier report by Education New Zealand indicated that there were over 120,000 international students in New Zealand at that time. Work BERL has done in recent years has estimated that the average direct spending per student on living costs and tuition fees is about $30,000 per year. Presumably many of the 120,000 students are in multi-year courses. Many could still be in New Zealand and will not be ‘locked out’. However, the new visas may be cut from the 25,000 number.

If the overall number of international students dropped to 90,000 for most of this academic year, the direct spending on living costs and tuition fees would be reduced by about $900 million. Taking into account the value added component and the indirect value chain impacts, this could reduce New Zealand’s annual GDP by $700 million in 2020. The total value chain employment impact could be a reduction by 5,000 to 6,000 Fulltime Equivalent employees.

04. Capital resources

The bald facts are:

  • TWI NZ$ exchange rate (February average) at 71.4; down from 74.1 a year earlier.
  • Government 10-year bond rate (February average) at 1.28%; down from 2.18% a year earlier.
  • SME business overdraft rate (February average) at 9.09%; down from 9.42% a year earlier.
  • Growth in credit to non-agriculture business (January 2020 on January 2019) at 6.7%; up from 5.7% a year earlier. 
  • Growth in number of residential building consents (3 months to January 2020 on 3 months to January 2019) at 8.5%; marginally down from 8.9% a year earlier.
  • Growth in area of non-residential building consents (3 months to January 2020 on 3 months to January 2019) at -9.4%; down from 47.5% a year earlier.

Investment and building activity

House building construction is set to continue apace, with over 37,600 new residential consents issued over the 12 months to January 2020. This is 12 percent up on the previous 12 months, and is close to historical highs reached in the early 1970s. Further, these increases are evident across almost all regions.

Source: Statistics New Zealand

Ongoing capacity constraints have led to a relatively more sporadic record of consents issued in the non-residential building sector. A more relevant measure of activity here is work put in place. This measure puts the volume of activity in the non-residential sector at over ten percent up on the previous year.

As has been the case for some time, the construction sector holds the key to current levels of economic activity and employment continuing. There continues to be a steady stream of private and public investment in housing and infrastructure investments to tackle. The acceleration of central and local government spending decisions is required to enable the construction sector to potentially pick up the slack as other sectors feel the impact of the global turmoil.

Furthermore, record low interest rates for government borrowing should be exploited to the utmost. Business cases for investment need no longer to discount future benefits. This means investments, projects and programmes that will only deliver benefits in future years (or decades) are now a lot more attractive and viable.

Money and credit

The long-overdue correction to stock market values has finally been triggered. The circumstances of the triggering were undoubtedly a surprise, but investors who believed that the strong surging post-GFC bull market was going to continue forever were deluding themselves.

For New Zealanders with KiwiSaver or similar savings, it is undoubtedly disheartening to watch savings erode away. Some might call it trite, and it will also no doubt be difficult, but it is important to retain the focus on the long-term. Many savings funds will have enjoyed remarkable growth over the past decade – and while this turmoil has effectively wiped out a year or so of those gains, there remain significant gains from 2010 levels.

Indeed, the NZX50 appears to be the only main index around the globe that remains above year-earlier levels. Consequently, it continues to represent an average double-digit per annum growth over the past decade. In contrast, the Dow, Nikkei, DAX, Mumbai Sensex, ASX, FTSE, and the Shanghai Composite and are all below year-earlier levels. However, the DOW, Nikkei, DAX, and Sensex indices currently continue to be well above 2010 levels – still representing more than an average six per cent per annum annual growth over the decade.

Source: Various

In terms of policy responses, the fiscal response is not more important than the monetary one (outside of ensuring liquidity and cash flow). While central banks can cut interest rates, they will be of little effect. Fiscal authorities (finance ministries and treasuries) will need to step up to restore effective demand.

This prospect will be most challenging for the European Union (EU) and their member countries. The EU clearly need to relax their otherwise restrictive rules on balancing government budgets. Retaining balanced budget rules, effectively forcing another bout of austerity on a weak and fragile economy is not what is needed. Importantly, what is not needed is another bail out of banks or other financial institutions. What is required is for governments to spend to pro-actively support jobs and incomes of those vulnerable, most in need, and least resilient.

Italy is currently most at risk, and restricting their response because of existing EU budget rules will have severe implications for Italy and could cascade to other parts of the globe. Essentially, Italy cannot be allowed to be another Greece.

05. Home base

The bald facts are:

  • Growth in value of electronic transactions (three months to February 2020 on three months to February 2019) at 4.7%; up from 3.2% a year earlier.
  • Growth in core retail sales values (December 2019 quarter on December 2018 quarter) at 4.0%; down from 4.9% a year earlier.
  • Core retail price inflation (December 2019 quarter on December 2018 quarter) at 0.7%; up from -0.1% a year earlier.
  • Consumer price inflation (December 2019) at 1.9% per annum; unchanged from 1.9% a year earlier.
  • Core Crown tax revenue (seven months July 2019 to January 2020) totalled $51.3bn; up 7.6% on the same period of the previous year.


Inflation is up to 1.9 percent in December 2019, just under the target of two percent. This is a rise from 1.5 percent in the September quarter. 

Food is getting more expensive, increasing 2.5 percent over the year. Most of this growth is due to meat and fish, increasing 4.5 percent over the year. Fruits and vegetables, and other grocery food prices have risen, though less than two percent. 

The costs of financial services have also been changing quickly, while insurance premia are increasing, up 4.5 percent this year, lower interest rates are driving significant reductions in the costs of credit services, which reduced ten percent.

The recent oil price war triggered by the dispute between Saudi Arabia and Russia has sent shockwaves around the world. OPEC, an international cartel controlling 80 percent of the world’s oil reserves, failed to reach an agreement on limiting levels of production. Consequently, Saudi Arabia threatened to increase their production immediately. The price for Brent Crude, an industry benchmark for oil, fell 24 percent in one day, the largest single day decrease since 1991. While this will have a flow on effect to New Zealand petrol prices, the extent of the effect will depend on how the situation with OPEC develops, and whether a deal can be reached.

Source: Federal Reserve Economic Data

With uncertainty surrounding COVID-19, inflation in the coming quarters will be important to monitor. We say this not because we are inflation hawks, but inflation measures will be a useful barometer in assessing whether the economic impact of COVID-19 is flowing through demand or supply channels. Typically in periods with high uncertainty or expected recession, demand falters; resulting in lower inflation. However, as COVID-19 disrupts supply chains, shortages in supply could result in higher inflation. The nature of this outcome will be important to understand to determine appropriate and relevant policy responses.


Retail sales volumes continue to grow, particularly in the furniture, hardware and appliances categories, which were especially popular in the three months leading into Christmas. Department stores also had a good year in terms of volumes, up 6.5 percent compared to 2018, but were more subdued in the latter part of the year.

The number of electronic transactions continues to grow. The rate of this growth has been slowing, now increasing at a rate of 3.4 percent per annum compared to almost five percent a year earlier, and 8.3 percent at the peak in 2018.

The value of electronic transactions is similarly positive. The latest figures, up to February, show values up 4.7 percent on the year earlier. Sales transactions in the durables category saw the largest growth, with a decline in values in fuel reflecting volatile price movements. 

Source: Statistics New Zealand

Retail spending statistics are often influenced by fluctuations in the price of fuel. Spending on fuel for the 2019 year was down 7.5 percent on last year, but much the same as for the three month period to December compared to a year earlier, as prices were generally lower in the first half of the year.

Recently we have seen Government action to increase competition in the fuel retail market. In addition, there has been the arrival of independent retailers into Wellington where fuel has historically been more expensive than in other centres. However, volatility in world oil prices may well be an overwhelming influence on retail petrol prices over the short term.

Government accounts

The New Zealand Government accounts are in a strong position to weather the economic uncertainty brought about in part by COVID-19. The Government’s books are in surplus and expenses close to forecast.

The Interim Financial Statements of the Government of New Zealand for the seven months ended 31 January 2020 show that the operating balance before gains and losses (OBEGAL) is close to forecast with a surplus of $1.4 billion. This is $0.1 billion below forecast. 
Core Crown tax revenue was $0.4 billion below forecast due to lower than expected corporate tax revenue which was $0.8 billion below forecast. GST revenue was $0.2 billion below forecast as a result of lower residential investment. At the time the statements were prepared this lower than investment was expected to be offset by higher consumption later in the year with GST expected to be in line with forecast by the end of the financial year.

Core Crown expenses were $0.1 billion below forecast at $53.1 billion.
Net core Crown debt was $0.4 billion lower than forecast at 19.5 percent of GDP. This is below the current Budget Responsibility Rule target of reducing debt to 20 percent of GDP within five years of taking office. 

Source: Govt Financial Statements

At Budget 2019 the Government announced it will ease up on its self-imposed debt target and give itself flexibility to loosen its purse strings from 2021/22. The debt target has been replaced by a rule to keep net debt between 15 and 25 percent of GDP from 2021/22. As the Treasury forecasts net core Crown debt to fall to 19.6 percent in 2023/24, the Government has significant leeway to ramp up spending or provide tax relief in response to COVID-19.

The current budget surplus and low debt to GDP ratio, combined with all-time low interest rates for government borrowing, has seen the Government announce an increase in spending heading into the election in September. The 2020 Budget Policy Statement (BPS) was released in December 2019 and sets out the priorities for the 2020 Wellbeing Budget. Along with the five budget priorities the major announcement was an additional $12.0 billion investment in capital. The Minister of Finance called it "once in a generation" fiscal opportunity.

This investment will be directed to areas like transport, health, education and greenhouse gas reductions. This increase in investment is intended to provide further support for the New Zealand economy in the face of slowing international growth and stronger global headwinds.

The downside is the ongoing slowness in getting these projects underway. Given the COVID-19 situation, this investment package needs to be accelerated. Those shovel ready projects need to be shovelling now.

06. Abroad and beyond

The bald facts are:

  • Growth in merchandise export receipts (3 months to January 2020 on 3 months to January 2019) at 6.6%; up from 0.7% a year earlier.
  • Growth in merchandise import payments (3 months to January 2020 on 3 months to January 2019) at -1.4%; down from 4.8% a year earlier.
  • Growth in international tourist spending (3 months to January 2020 on 3 months to January 2019) at 8.1%; up from 4.8% a year earlier.
  • Growth in India GDP (December 2019 quarter on December 2018 quarter) at 4.7%; down from 6.6% a year earlier.
  • Growth in China GDP (December 2019 quarter on December 2018 quarter) at 6.0%; down from 6.4% a year earlier.
  • Growth in Australia GDP (December 2019 quarter on December 2018 quarter) at 2.2%; unchanged from 2.2% a year earlier.



The New Zealand Government, in response to managing the COVID-19 outbreak, placed a travel ban on any foreigners from Iran or mainland China. This will be felt heavily throughout the tourism industry. Chinese tourists are the second largest tourist spenders, accounting for 14 percent of our international tourist revenue over the past year. The data on visitor numbers show that there were approximately 90,000 Chinese visitors in February and March 2019. 

Source: Ministry for Business, Innovation and Employment

The COVID-19 outbreak has had ramifications more widely, such as causing airlines to cancel flights and for tourists to cancel travel plans. COVID-19 has undoubtedly impacted the tourism sector negatively, but the extent to which it has been affected is yet to unfold. Part-time and casual tourism workers are likely to be most affected as businesses look to adjust. The Tourism Industry Association has a particularly gloomy outlook if the outbreak is prolonged. 

Some good news is that the number of new cases in China each day has significantly dropped; on 9 March there were 45 new cases in China, compared to 15,200 on 13 February. If the travel restrictions are able to be removed soon, the impact on the tourism industry may not be as bleak as some are suggesting. Nevertheless, even with any lifting of the travel restrictions, short-term impacts on cash flow will need to be managed.

Goods (merchandise) exports

It has been a bumpy couple of months for many of New Zealand’s exporters. With rising concerns around COVID-19, market disruptions are set to continue. In total, the year to January has been positive, with 6.6 percent higher export receipts than in the previous year. 

Provisional data from Statistics New Zealand for February suggest the COVID-19 impact mostly affected meat and seafood exports to China, falling 40 and 60 percent respectively compared with February 2019. With 150 to 180 tonnes of live crayfish unable to be exported to China, some of these were returned to the ocean.

The forestry industry has been significantly affected after a slow end to 2019. From June 2019, falling log prices resulted in a significant decline in exports. The final two quarters of the year returned 19 and 15 percent less than the same quarters of 2018. While January looked set to start the recovery, COVID-19 disruptions saw China effectively halting their import of logs. This caused another sharp downturn in harvesting, with many logging crews around the country stopping harvesting completely.

Provisional statistics for February suggest that the volume of logs exported was down eight percent, the low log prices resulted in exports being reduced by 28 percent compared with February 2019. Given the reduced harvesting, reduced export volumes of logs will be expected over the next quarter.

As China works to restart their economy, the demand for New Zealand’s exports, particularly food and primary resources, will return towards normal levels. However, the large unknown remains: just how quickly?

Trade and payments balances

New Zealand has experienced continued strong growth in goods export receipts and this has been reflected in an improving merchandise trade balance had started to improve. After hitting an annual deficit of $6.7 billion in the year to February 2019, the balance was down to $3.9 billion in the red for the year to January 2020. 

On the import side, early last year the growth in our annual import bill finally dropped below 10 percent, and has continued to drop, being just 0.6 percent in the year to January 2020. This slowing of growth in our import bill has come from a slowing of growth in our imports of motor vehicles, plant and transport equipment. At the same time, very strong increases in our annual crude oil import bill, has seen us pay $4.3 billion for crude oil over the last 12 months. 

Source: Statistics New Zealand

In contrast, trade in services (including education and tourism export revenue) remained in solid surplus for the year to September 2019. For the 12 months till September our trade in service surplus was $4.2 billion. Overall tourism contributed the largest share of our service export revenue, with $13.1 billion in earnings, while education earned a further $5.2 billion.

The world


As of 11 March 2020, Australia had 113 confirmed cases of COVID-19, of which 61 are within New South Wales (NSW). In an effort to stop the spread, Australia has placed travel bans on visitors arriving from China, Iran and South Korea, while travellers from Italy face additional health checks.

As the number of cases increases, the Australian Government has announced that up to 100 pop-up respiratory clinics will be established around Australia to fight the spread of coronavirus. These clinics will be funded under an A$2.4 billion federal government health plan that also includes subsidised video-link consultations and a targeted public health campaign. 

In addition to the health spending, the Australian Government announced on Thursday 12 March the details of their stimulus package worth A$17.6 billion – of which A$11 billion is to be spent before the end of June 2020. The package includes cash handouts of $750 to households who receive government benefits, a wage subsidy of $7,000 for 117,000 apprentices, and an accelerated depreciation scheme for employers. The Australian Treasurer has also foreshadowed the potential for further cash injections to come in the May 2020 budget.

It should be remembered that the COVID-19 outbreak comes on the back of one of the worst Australian bushfire seasons ever seen. The 2019/20 season had seen 18.6 million hectares of burnt, with the loss of 5,900 buildings, and 34 lives. To help with the recovery efforts, the Australian Federal Government has promised at least A$2 billion in a National Bushfire Recovery Fund. 

Interestingly, the year to December 2019 saw Australian GDP growth of 2.2 percent, up from 1.8 percent for the year to September 2019, and the 1.6 percent growth for the year to June 2019. This improving GDP growth was supported by Australian unemployment sitting at 5.1 percent. Prior to the COVID-19 outbreak, the Reserve Bank of Australia was forecasting GDP growth to be around 2.75 percent for the 2020 year.

Australian Bureau of Statistics


World Health Organisation data reports that as of 9 March 2020 there were 80,904 confirmed cases and 3,123 confirmed deaths from COVID-19 in China.

The COVID-19 outbreak appeared at a time when the economy of China was already on shaky ground. Indeed, the economy of China has been growing gradually more slowly over the last decade. Latest official estimates, put growth at 6 percent – although many would query the veracity of that figure. The structural problems are pretty clear, as organisations balance sheets remain overweight in debt alongside assets of questionable value. The shift to more consumption-led growth has not proceeded as swiftly as wished, while the demographics of the population are unfavourable for such a shift.

The economic impact of COVID-19 is both a demand reduction and a supply chain disruption. China’s economy is still very largely dominated by manufacturing. A good estimate of the level of disruption caused is the Manufacturing Purchasing Managers’ Index. This indicator is a weighted index of five other indices, which measure different types of manufacturing decision points. Values of the index above 50 indicate the manufacturing sector is expanding. Values below 50 indicate the sector is contracting.

The data from the National Bureau of Statistics of China shows this index being barely above 50 since 2017. The precipitous drop in January 2020 from a value of 50.0 to 35.7 reflects the immediate severity of the outbreak.

United States

Despite a healthy jobs report for the month of February, with more than 270,000 people hired, the US stock market is sending bleak signals. While the COVID-19 outbreak has not had a significant impact on the labour market yet, this might not continue. The outbreak is now reducing travel, disrupting supply chains and triggering the long-awaited correction for stock market prices.

Bureau of Labour Statistics

However, the real impact is still very uncertain. If large conferences and concerts continue to be cancelled, and more people decide on a staycation rather than flying, it is likely to severely impact on the consumer-driven side of the economy. That means that workers in these industries will be in danger of reduced hours or layoffs.

On 6 March, the President signed a Congress-approved US$8.3 billion spending bill, while pumping significant funds into prevention efforts and research into producing a vaccine. 
Last week the Federal Reserve announced a cut to the interest rates. The half-a-point cut brought the rates at which banks can borrow from each other down to 1.25 percent. However, it did not immediately have the desired effect, with the stock market continuing its volatile week. 

A combination of the drop in oil prices and stock market volatility, coupled with the impact of the COVID-19 outbreak, foreshadows a rough ride for the US economy.

Europe (incl. UK)

Banking regulators and EU authorities are responding quickly to limit the economic fallout from COVID-19.

The European Central Bank’s Governing Council is meeting Thursday 12 March and expected to announce similar measures. However, with their main interest rate at zero and a secondary rate that is already negative, their options are limited. The European Commission is mobilising €25 billion as a “Corona Response Investment Initiative”, easing European Union (EU) spending rules. The fund is aimed at supporting SMEs, workers, and national healthcare systems, with €7.5 billion expected to be released in the coming weeks.

Relaxing the budget spending rules on individual EU nations will also be critical to enable governments to respond to the outbreak. Otherwise, retaining existing rules and yet again following an austerity path in the face of this upheaval would see considerable and magnified misery across Europe.

In Germany, the DAX Index fell this week, and is set to enter a bear market (where prices are 20 percent or more down on previous peaks). Oil prices and the impact of COVID-19 in Italy saw the DAX down 7.9 percent on Monday 9 March, a new 52-week low. Germany is bracing itself for a slowdown, already being on the verge of a recession after a deepening manufacturing slump and trade hostilities in 2019. The coalition government has announced an aid package to boost the German economy, offering liquidity support for the hardest hit businesses, and compensation for workers forced to reduce working hours.

Source: DAX index

An unprecedented lockdown has been put into place in Italy, with extensive restrictions imposed on the population of 60 million until at least 3 April. This will inevitably have negative impacts on employment, supply chains, business activity, and bank loan repayments. In announcing the measure, Prime Minister Giuseppe Conte stated, “Our habits need to change. They need to change now.”

France has banned any gatherings of more than 1,000 people, with sporting and entertainment events, and business and academic conferences being cancelled as a result. Protests, public transport, exams, and the upcoming municipal elections, are exempt. The French government is looking at fiscal policy to stimulate the slowing economy, and is pushing for a co-ordinated response from Europe, including leniency from bank regulators. François Villeroy de Galhau, Governor of the Banque de France noted, “This slowdown is potentially severe but temporary”.

On Wednesday 11 March, the Bank of England announced an emergency cut of 0.5 percent to its main interest rate, taking it down to 0.25 percent, the lowest level in history. The same day, the UK finance minister announced £30 billion in spending and tax breaks, with an additional £12 billion in targeted COVID-19 relief measures.

The FTSE100 closed on Monday 9 March at 7.7 percent down, the largest single day drop since the GFC. As for stock markets around the globe, part of this reduction can be seen as the long-awaited market correction – but that will not soothe the nerves (or limit its impact). 

The UK unemployment rate stood at 3.8 percent in the December 2019 quarter, the lowest rate since December 1974. But pundits say this is masking a slump in productivity growth, where more people are working for longer because they are poorer than they expected to be. Inflation-adjusted earnings are below 2008 levels with weak wage growth in the past decade, and household incomes have stayed low.

GDP in the UK flat-lined in the last quarter of 2019 in the midst of uncertainty about BREXIT and the results of the snap election. Retail spending fell, and manufacturing and service sector output remained subdued. With current levels of uncertainty about the impacts of COVID-19, it is reasonable to expect disruption to supply of some goods and services in the face of low public confidence.

The BREXIT transition period is due to end in December 2020, with ongoing discussion about immigration and border controls. In particular, the UK has vetoed participating in the “safety and security zone”, which would have smoothed cross-channel freight, despite requests from haulage companies facing increasing administration costs.