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Birds Eye View

Spring 2020

Incorporating BERL Forecasts (Vol LXIII No 3)

01. The Front Page

Not surprisingly, the Alert Level 3 and 4 lockdown from 25 March to 14 May resulted in plummeting levels of GDP activity, and, consequently an official recession. However, as some have noted, this recession is actually officially over as the September quarter will certainly record a quarterly increase in GDP activity.

This somewhat superficial assessment of the economic situation using GDP numbers reinforces the unhelpfulness of the GDP measure. We note that GDP measures the worth of an activity in terms of market values. Thus worth of a bond trader is several times more than that of a COVID lab technician. Furthermore, the worth of many of those essential workers is not much more than the minimum wage according the GDP measure, while volunteers and other unpaid workers do not even feature in the calculation.

Source: Statistics New Zealand

So while GDP remains an economic indicator on our dashboards, it is important to recognise its shortcomings and look to other signals for more clarity on the current situation.

In this context, we point to the Jobseeker Support numbers as a clearer and up-to-date signal of the quantum of the downturn.

Data to end September show approximately 70,000 more kiwis were receiving Jobseeker Support (JS) or the higher COVID-19 Income Relief Payment (CIRP) than in March. While this six-month surge is spread across the country, areas like Te Tai Tokerau, Waiariki, Otago, and Nelson have been hit the hardest. It is also important to note that these numbers do not include those supported by the Wage Subsidy, which has brought many businesses and organisations time.

Source: Ministry of Social Development

Despite the relative optimism in line with the post-lockdown spending rebound, assisted in part by the impetus from monetary policy measures boosting the wealth of home owners and other asset holders, the immediate outlook remains sombre. Without doubt, the biggest negative influence is from the rest of the world, as rolling and intermittent and uncertain disruptions to activity continue abroad. Against this, is the backdrop of little sign across the globe that there is much control over the spread of the virus itself. The ongoing uncertainty around the global situation will continue to cast a pall over the New Zealand horizon.

Treasury and Reserve Bank forecasts assume significant border restrictions through 2021, before being lifted in early 2022. These assumptions may turn out to be optimistic, but they accompany a significant lift in unemployment numbers, peaking near eight percent in early 2022. The shape of the recovery thereafter is also, arguably, optimistic with a reduction in jobless to under six percent by mid-2024.

Our forecasts are more cautious than either the Treasury or the Reserve Bank Outlook. We see more of a marathon effort in reducing unemployment. Our expectation of a more patchy global situation leads us to question whether a fully open unrestricted border is viable by 2022. In addition, domestic spending will be subdued as ongoing uncertainty bring job concerns to the fore.

Source: BERL, The Reserve Bank of New Zealand, and The New Zealand Treasury

Overall, driving economic activity will be the government sector. In one form this will be through a combination of shovel-ready projects, along with funding support for community, health and training programmes. In another form, will be local government’s efforts to implement already announced shovel-ready or Provincial Growth Fund projects, along with maintaining community facilities and services. The capability, speed, and capacity of the government sector to deliver these will be tested. Constraints within delivery mechanisms, no to mention the construction sector, add to our cautious outlook.

Among these considerations is the uncertainty surrounding the social security safety net available for the jobless. While the wage subsidy and the interim COVID-19 Income Relief Payment (CIRP) have provided a short-term buffer for some, a long-term increase in the number of jobless will increase calls for an income safety net that is more adequate than is currently the case.

Activity in the external sector will remain positive, with goods exports and supply chains remaining sound. Tourism exports and international education, however, will struggle for many years even if borders are opened promptly. The appetite for long-haul air travel will take time to reappear. Also, the airline industry itself will require time to scale back up to supplying sufficient capacity for the tourism industry.

In terms of core indicators, we expect GDP numbers to rebound and recover quicker than employment numbers. Inflation pressures will remain muted throughout however, as global activity struggles to recover. Cost pressures in several specific sectors will continue though, in particular in construction and related industries. These pressures will be reinforced by ongoing difficulties in accessing skills and capacity.

More immediately, the incoming administration will need to urgently address the consequences of the current operation of monetary policy. The operation of quantitative easing (QE) through purchasing bonds on the secondary markets has undoubtedly succeeded in reducing long-term interest rates. However, this has been achieved at the expense of furthering inequality by increasing the wealth of existing asset holders and, in particular, home owners. The ongoing surge in house prices is not only unsustainable, but is also indefensible on economic and equity grounds. A redirection of QE towards creating new assets, rather than pumping up the price of existing assets is urgently required.

In addition, the incoming administration will need to decide on the level of support for the increasing number of newly jobless. The current level of main social security payments remains critically below levels of adequacy assessed by the Welfare Expert Advisory Group. The growing disconnect between housing costs and incomes will make this adequacy shortfall worse, and be telling with an increased number of people. In this context, calls for increased levels of social security support payments will only grow louder.

Early responses from the incoming administration to these two challenges will provide an early signal to where on the “more of the same” to “genuine change” spectrum the coming three years is likely to reside.

02. The Temperature

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

Fiscal and Monetary Policy 

  • Fiscal policy to remain on centre stage
  • Rewind of fiscal stimulus will need to be implemented very slowly
  • Monetary policy rethink needed if accelerating house prices are to be addressed
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


  • US election result could lead to a further three months of heightened uncertainty
  • US, Europe, and UK grappling with second wave of COVID-19
  • BREXIT negotiations remains unclear

Monetary policy stance

  • Response to accelerating house prices may require unconventional tools
  • Implementation of negative wholesale interest rates will be closely watched

Domestic factors

  • The timing of selected travel bubbles on the horizon
  • Government response to rising jobless numbers and calls increases in levels of benefit payments
  • The post-wage subsidy resilience of a range of businesses is unclear

03. People resources

The bold facts are:

  • Unemployment (June 2020, seasonally adjusted) at 4.0%; unchanged from 4.0% a year earlier
  • Underutilisation (June 2020) at 12.0%; up from 11.1% a year earlier
  • Employment growth (QES June 2020 on June 2019) at 0.8%; down from 1.0% a year earlier
  • Growth in average weekly hours worked (HLFS June 2020 on June 2019) at -9.2%; down from +0.2% a year earlier
  • Labour force participation rate (June 2020) at 69.4%; down from 69.9% a year earlier
  • Growth in total weekly earnings (March 2020 quarter on March 2019 quarter) at -0.2%; down from 3.7% a year earlier
  • Net migration (12 months to July) at +76,190; up from +54,000 a year earlier.


According to the latest Household Labour Force Survey (HLFS) results, the number of people in employment in New Zealand decreased by 11,000 in the June 2020 quarter, but the unemployment rate actually fell to 4.0 percent, from 4.2 percent in the March quarter.

Not a bad result, on the face of it, but these numbers disguise underlying labour market weakness. 37,000 people left the labour force in the June quarter and the underemployment rate (broadly, proportion of employed people working fewer hours than they would like) increased to a record 12.0 percent. The total number of hours worked by people in employment dropped by 10.3 percent.

Moreover, the employment and unemployment numbers would have been far worse, were it not for the COVID Wage Subsidy Scheme. At its peak in June, around 1.7 million people were covered by the Scheme and, undoubtedly, a significant number of these would otherwise have lost their jobs. As the underemployment and hours worked numbers referred to above imply, many of them would have been working reduced hours, and many might even have been nominally employed, but not actually working.

Source: Statistics New Zealand

Although no new applications for the Wage Subsidy Scheme were being accepted after the start of September, monies paid out will still be covering some employees until the end of October. This means that it will not be until the first quarter of 2021 before the HLFS results are wholly unaffected by the Scheme. Only then will it be clear by how much employment and labour market participation have dropped. The number of unemployed people will probably not increase to the same extent that the number of employed people decreases because some people who lose their job will not seek to find alternative employment. They will simply withdraw from the labour market because they see no prospect of finding another job. And, because they will not be seeking employment, they will not be categorised as unemployed.

In the meantime, experimental data from the IRD, based on payday filing records, provides a reasonably up-to-date indication of what is happening to employment. Although it is still distorted, to an unknown extent, by the Wage Subsidy Scheme, data on the number of paid jobs for the week ended 16 August showed that the total was remaining reasonably stable at around 2.2 million.

Source: Statistics New Zealand

The PREFU indicates that the unemployment rate will rise to 7.7 percent by June 2021. This is a lower rate than was first feared, but much will depend on what decisions employers make about underutilised staff once the Wage Subsidy runs out, and on whether people who lose their jobs stay in the workforce.


The latest numbers from Statistics New Zealand show that net migration in July was virtually zero, with roughly 1,000 New Zealand citizens returning to the country on a permanent or long term basis, and roughly the same number of non-citizens leaving.

Interestingly, however, net migration for the 12 months to July was almost 73,000. This was largely because there was a dramatic surge in migration in the first three months of this year. Between January and March, net migration was just over 33,000, but in the following four months, the total was less than 800.

The driving force behind this change has been COVID-19, of course. Migration numbers tend to fluctuate month by month. The data tells us that there was an average migration loss of around 1,200 New Zealand citizens per quarter until the end of 2019, while there was an average gain of around 15,000 non-New Zealand citizens. However, because of a rush to beat the border shut down, there was a migration gain of just over 25,000 non-New Zealand citizens, and a gain of almost 8,000 New Zealand citizens in the March quarter of this year.

There was still a migration gain of New Zealanders in the second quarter, although it was down to just over 2,000. At the same time, there was a net loss of almost 1,300 non-New Zealanders.

The significance of the latter fact is that this was the first time that there was a net loss of non-New Zealanders this century.

The PREFU suggests that net migration will gradually increase to 35,000 by June 2024, but that is simply a forecasting assumption and the outcome is decidedly uncertain.

04. Capital resources

The bald facts are:

  • TWI NZ$ exchange rate (August average) at 71.6; marginally up from 71.8 a year earlier
  • Government 10-year bond rate (August average) at 0.68%; down from 1.25% a year earlier
  • SME business overdraft rate (August average) at 8.38%; down from 9.00% a year earlier
  • Growth in credit to non-agriculture business (July 2020 on July 2019) at 0.5%; down from 7.7% a year earlier
  • Growth in private sector credit (July 2020 on July 2019) at 3.8%; down from 6.6% a year earlier
  • Growth in number of residential building consents (3 months to July 2020 on 3 months to July 2019) at 3.9%; down from 12.1% a year earlier
  • Growth in area of non-residential building consents (3 months to July 2020 on 3 months to July 2019) at -11.0%; marginally down from -10.8% a year earlier.

Investment and building activity

Since 2012, and leading up to 2020 residential investment (as measured by 12 month total building consents) showed strong growth following the rebuild after the 2008 Global Financial Crisis. We saw residential investment return to 2004 levels in around 2018. Since then, residential investment continued to show strong growth.

The containment measures of COVID-19 in early 2020 caused a sharp drop in monthly building consents as council workers were disrupted and could not process applications. This is obvious in the March and April monthly entries which show 2,904 and 2,168 residential building consents, respectively. Since restrictions have eased and staff have been able to resume duties the May, June, and July data shows that residential consents have recovered to hovering around 3,400 each month.

We forecast residential investment to remain elevated but expectations of further growth should be tempered. The backdrop of residential investment over the coming decade is the rebuild from the containment measures of COVID-19, this will take time but we needn’t believe there will be a severe drop in residential investment.

Source: Statistics New Zealand

Non-residential building investment (in value, area, and total count) shows a similar sharp dip in March and April as the restriction of the containment measures of COVID-19 prevented these consents from being processed. This series too shows June and July as “catch up” months. We expect non residential investment to follow a similar flat path for the foreseeable future, this is driven largely by business confidence in the future.

We do stress that the current low interest rate environment means now is the time for businesses to be investing, the Reserve Bank is buying local and central government bonds, forcing yields down, as a signal for retail banks and other investors to take on more risks.

05. Home base

The bald facts are:

  • Growth in value of electronic transactions (three months to August 2020 on three months to August 2019) at 1.6%; down from 2.7% a year earlier
  • Growth in domestic tourist spending (3 months to July 2020 on 3 months to July 2019) at -4.0%; down from 0.0% a year earlier
  • Growth in core retail sales values (June 2020 quarter on June 2019 quarter) at -11.8%; down from 3.9% a year earlier
  • Core retail price inflation (June 2020 quarter on June 2020 quarter) at -0.1%; down from 0.3% a year earlier
  • Consumer price inflation (June 2020) at 1.5% per annum; down from 1.7% a year earlier
  • Core Crown tax revenue (eleven months July 2019 to May 2020) totalled $78.95bn; down 1.0% on the same period of the previous year.


In the Winter 2020 BEV we covered the June 2020 Consumer Price Index release from Statistics New Zealand that found that when compared to March 2020 the June 2020 quarter recorded negative inflation of 0.5 percent, taking the annual inflation rate to 1.5 percent in year to June 2020.

The Labour Cost Index (LCI) is often compared with the consumer price index (CPI) to see how wage inflation compares with consumer inflation. The LCI for all salary and wage rates (including overtime) increased 2.1 percent in the year to the June 2020 quarter.

The June 2020 LCI is complicated as it captures the impacts of the COVID-19 enforced lockdown and the April 1 increase in the minimum wage. In March 2020 the Government announced a COVID-19 wage subsidy scheme to support businesses and employees impacted by COVID-19. For the June 2020 quarter the LCI includes the wage subsidy as part of reported wages.

On a quarterly basis, salary and wage rates rose by 0.2 percent. The increase during the quarter is supported by the minimum wage increase, which came into effect on 1 April 2020 and saw the minimum wage increase from $17.70 to $18.90 an hour on 1 April. This was the lowest quarterly rise recorded since December 1994. Without the increase in the minimum wage the June 2020 quarter would’ve been flat over the quarter, and 1.8 percent over the year.

While an increase in the labour cost index may seem counter intuitive given the concerns surrounding employment while COVID-19 is a factor, the LCI measures movements in wages for a fixed quantity and quality of labour. COVID-19 impacts on salary and wage rates in the June 2020 quarter were more often reported as quantity changes, such as changes in hours or responsibilities, which is not shown in the index. Changes in pay rates for employees were shown in the LCI only if the same job was completed to the same standard with the quality and quantity of labour unchanged.

As lower paying industries such as retail trade and accommodation and food services experienced a drop in paid hours during lockdown while receiving the wage subsidy, higher paid industries like public administration and safety, and healthcare and social assistance were less impacted. This change in hours worked drove up average ordinary time hourly earnings at the national level.

Source: Statistics New Zealand

Because the LCI does not capture the full impact of COVID-19 on hours worked it does not tell the whole story. During the June 2020 quarter hours fell sharply. Although wages remained relatively static when quality and quantity controlled in the LCI, weekly earnings per full time equivalent employee could not compensate for falling weekly hours.

Average weekly hours paid per full time equivalent employee (FTE) fell from 38.6 hours to 37.4 hours. The fall in weekly hours paid led to a 2.4 percent drop in weekly earnings to $1,250. This was the largest quarterly drop since the series began in 1989.

Statistics New Zealand reported that around 30 percent of gross pay in the June 2020 quarter came from the Government’s COVID-19 wage subsidy. If funds received from the wage subsidy were removed, and no other changes occurred, average weekly pay per FTE would have been $853 instead of $1,249. When the wage subsidy ends the full impact of COVID-19 on wages will emerge. In the LCI, Statistics New Zealand identified approximately 70 percent of employers who responded had received the wage subsidy by 15 May 2020.


Retail is down; there has been a decrease in the value of electronic card transactions. However, it is not too bad given New Zealand was in lockdown for nearly two months, which significantly prevented consumers from spending. The last few months have seen a spending recovery period, with consumers purchasing goods and services that they could not during lockdown. Resulting in post-lockdown spending in June and July that was greater than the previous June and July.

As expected, consumables have weathered the pandemic well. While hospitality, apparel and fuel have not. Hospitality has had a 13 percent decrease, apparel has decreased by 12 percent and fuel by 15 percent.

Government accounts

The impact of COVID-19 and the New Zealand Government’s fiscal response to support the domestic economy is expected to have a significant impact on the Government’s finances with ongoing operating deficits and an increasing level of Government debt. The release of the Pre-Election Economic and Fiscal Update (PREFU) is a look at the Government accounts and future forecasts in light of the initial response to COVID-19. The sudden shock saw the Government introduce significant health and economic support measures to get New Zealanders through what many expect will be an extended period of economic uncertainty.

In response to COVID-19 the Government has budgeted an additional $58.5 billion of discretionary COVID-19 fiscal support. This is an increase on the $35 billion included in the Budget Economic and Fiscal Update (BEFU) in May 2020. It is expected that core Crown expenses will continue to increase in 2021 fiscal year, reaching $119.5 billion, then reducing as the COVID-19 temporary fiscal support measures fall away.

In the year ended 30 June 2020 the total Crown operating balance before gains and losses (OBEGAL) was $23.4 billion in deficit (-7.7 percent of GDP). In 2021 OBEGAL is forecast to increase to a deficit of $31.7 billion. Treasury expect that the increase in the OBEGAL deficit will be driven by a deterioration in tax revenue and the additional cost of the Government’s COVID-19 fiscal support measures.

As economic activity picks up Treasury forecasts show an uplift in tax revenue and at the same time some of the temporary fiscal support measures start to unwind, leading to the operating balance before gains and losses (OBEGAL) deficit narrowing to $12.4 billion by 2024.

BERL are less optimistic with our forecasts for OBEGAL. We expect that in 2021 OBEGAL will be almost $40.4 billion in deficit by 2021 before reducing to $15 billion by 2024.

Source: 2020 Pre-Election Economic and Fiscal Update

To put this into context, the Half Year Economic and Fiscal update (HYEFU) that was produced in December 2019 prior to COVID-19 restrictions, forecast OBEGAL to be a deficit of $900 million in the year to 30 June 2020 before returning to a small surplus in 2020/21 which was then expected grow to reach $5.9 billion in 2024.

Total core Crown tax revenue fell in 2020 to $84.9 billion compared to $86.5 billion in 2019. Tax revenue is expected to remain below 2019 levels over the next two years as the economy recovers. As New Zealand has been more successful in reducing the spread of COVID-19 the falls in tax revenue are smaller than forecast in the BEFU. The BEFU forecast 2021 core Crown tax revenue to be $80.1 billion. However, the strong COVID-19 response has seen the 2021 forecast increase to $84.7 billion in 2021. Core Crown tax revenue is expected to reach a low of $84.3 billion in 2022 before returning to pre COVID-19 levels by 2023 ($82.5 billion).

Much has been made about the growth of net core Crown debt to combat the negative impacts of COVID-19. However, Government spending has been identified by the OECD as the critical to the response.

Net core Crown debt has increased to $83.4 billion. A $25.7 billion increase from 2019. Net core Crown debt increase to 27.6 percent of GDP. As the Government plans to spend to support the economy net core Crown debt will climb to $130.2 million in 2021 (43 percent of GDP). By 2024 net core Crown debt is expected to reach $201.1 billion. This is expected to be the equivalent of 55 percent of GDP.

Source: 2020 Pre-Election Economic and Fiscal Update

In the December 2019 HYEFU pre COVID-19 net core Crown debt as a proportion of GDP was forecast to be 21 percent in 2021 before falling to 19.6 percent in 2024.

Much has been made of this increase however the OECD has identified the need for fiscal support through the initial COVID-19 period and beyond. The OECD has stated that “With confidence still fragile, continued fiscal support remains necessary to support incomes, minimise scarring effects from the pandemic, and ensure a full and durable recovery. Support is particularly needed for vulnerable groups heavily affected by the crisis and the slow recovery, such as youth, non-permanent employees, informal workers, lower-income households, and small businesses.”

The OECD goes on to state that “the premature withdrawal of fiscal support in 2021 would stifle growth, as occurred in the aftermath of the global financial crisis in many countries.”

New Zealand is in a strong position to use fiscal policy to support the recovery. In the United States of America debt to GDP is well over 100 percent of GDP and in Japan debt to GDP has been above 200 percent for a number of years and is expected to remain. In Australia net Crown debt was 24.6 per cent of GDP at 30 June 2020 and is expected to increase to 35.7 per cent of GDP at 30 June 2021.

06. Abroad and beyond

The bald facts are:

  • Growth in merchandise export receipts (3 months to July 2020 on 3 months to July 2019) at -1.4%; down from 0.4% a year earlier
  • Growth in merchandise import payments (3 months to July 2020 on 3 months to July 2019) at -15.8%; down from 0.0% a year earlier
  • Growth in international tourist spending (3 months to July 2020 on 3 months to July 2019) at -60.0%; down from 6.1% a year earlier
  • Growth in India GDP (June 2020 quarter on June 2019 quarter) at -23.9%; down from 5.0% a year earlier
  • Growth in China GDP (June 2020 quarter on June 2019 quarter) at 3.2%; down from 6.2% a year earlier
  • Growth in Australia GDP (June 2020 quarter on June 2019 quarter) at -6.3%; down from 1.6% a year earlier.



Due to border closures, international spending has significantly dropped off impacting upon businesses and employment. Closed borders is our new normal. New Zealand borders are expected to be closed until the end of next year. If the borders do open at the end of next year, it will be a gradual process.

Lockdown periods have limited domestic travel, and significantly impacted upon the tourism sector. However, at Level 2 and 1, domestic tourism has picked up. Without international travel possibilities for Kiwis, many are exploring our backyard. In July, there was a total of $1,763 billion spent on domestic travel. This is the highest amount ever spent on domestic travel outside of the Christmas period.

Goods (merchandise) exports

The export industry has done very well despite the lockdowns, travel restrictions and global uncertainty. Exports for the year to July 2020 are $58.3 billion, 2.3 percent up (or up $1,330 million) compared to July 2019. Looking at the key export destinations, the international supply chains appear to be functioning well, with exports continuing to all the key export markets. This has been helped by relatively strong growth in China in the June 2020 quarter compared to the rest of the world.

Source: Statistics New Zealand

Dairy, meat, along with horticulture and viticulture have been leading the way in the past 12 months. Overall dairy exports for the year to July 2020 were up $1.6 billion, followed by meat exports up $718 million. While the peak of the kiwifruit season has passed, exports have been at an all-time high of almost $2.6 billion for the year, up $118 million on the previous year. Much of this is thanks to increasing volumes of gold kiwifruit, which comprise 65 percent of revenue, despite comprising 53 percent of total volume over the last 12 months.

Wine and infant formula have also done well, with wine at an annual export total of $1.9 billion, up $121 million on the year to July 2019, while infant formula is up $149 million to an annual export total of $1.7 billion for the year to July 2020.

Avocados are the next fruit to come into harvesting season, with similar challenges to kiwifruit, being having workers available to pick pack and process the harvest for 2020. The harvesting typically starts to ramp up in August, to peak export volumes in September through to January. Other horticulture exports have also been ticking away nicely. Apples for instance, are also at an all-time high of $900 million in the year to July, at export prices averaging $2.30 per kg. Recently considered a ‘sunset industry’, continued innovation in the apple industry to produce new trademarked varieties, such as Dazzle, has shown that the industry may still have growth potential as one of New Zealand’s key horticultural exports.

Forestry, along with seafood have been two of our most affected exports, with annual exports down $914 million compared to July 2019, with total exports of $3.8 billion. Seafood exports are down $312 million compared to July 2019, with total exports of $3.2 billion.

With China reopened and seeing growth in the June 2020 quarter, the harvesting of logs in New Zealand has started to pick up. In July 2020, $380 million of logs were exported, which is 11 percent up on July 2019, indicating a return to pre-COVID-19 levels of activity in the industry.

Trade and payments balances

As of the year ending July 2020, New Zealand was experiencing continued relative strong growth in goods export receipts, compared to our import goods payments. Export receipts for July 2020 were 2.1 percent higher than July 2020, while import payments were down 6.4 percent, across the same period. Our merchandise trade balance has therefore continued to improve over the last 18 months, after hitting an annual deficit of $6.7 billion in the year to February 2019. For the year to July 2020, the merchandise trade balance was just $115 million in the red. If this improving trend is able to continue for the rest of 2020, then New Zealand could see our merchandise trade balance reach the black and surplus by the end of 2020.

Source: Statistics New Zealand

The strong decline in our merchandise trade balance seen in 2018, had been caused by a double-digit growth in New Zealand’s annual import bill. The improvement in our merchandise trade balance has also come from a decline in our annual growth of imports. Throughout 2020, we have seen a continued decline in the value of our annual import bill, dropping from $65 billion in 2019 to $60 billion in July 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. Further denting New Zealand’s import bill, was a very strong decrease in our annual crude oil import bill ($3.2 billion for the year to July 2020). The COVID-19 lockdowns in New Zealand have seen a large reduction in oil imports, due to the low amount of fuel usage during the lockdowns. Just $47 million of crude oil was imported in April 2020, $115 million in May 2020, $100 million in June 2020, and $11 million in July 2020, compared to an average of $350 million per month in 2019.

In contrast, trade in services (including education and tourism export revenue) remained in surplus for the year to June 2020, though the surplus has been in decline since June 2018. For the 12 months till June our trade in service surplus was $2.0 billion. Overall tourism contributed the largest share of our annual service export revenue, with $10.8 billion in earnings, most of which was earned up to the end of the March 2020 quarter. The lack of international visitors allowed into New Zealand throughout the rest of 2020 and possibly 2021, will significantly lower these annual earnings, in next few quarters.

Education earned a further $4.6 billion for the year to June 2020 with only a small decline in quarterly earnings in the June 2020 quarter, this indicates that a significant portion of the approximately 100,000 international students enrolled with New Zealand education providers were able to make it into the country prior to the March 2020 closing of the border. Any of these who need to continue studying in 2021, will need to remain in the country once the study year finishes.

The world


For the June 2020 quarter, Australian GDP saw a 7.0 percent decline, compared to the March 2020 quarter, which was the largest peacetime contraction since the 1930s. Overall for the year to June 2020, Australian GDP growth dropped by 6.3 percent. This is down from 1.6 percent for the year to March 2020, and the 2.3 percent growth for the year to December 2019. Prior to the COVID-19 pandemic, the Reserve Bank of Australia was forecasting GDP growth in Australia to be around 2.75 percent for the 2020 year.

The impact of the COVID-19 pandemic which caused a sharp decline in GDP growth in June 2020 quarter, can also be seen in the Australian unemployment rate, which rose sharply to sit at 7.5 percent as of July 2020, before falling to 6.8 percent in August 2020.

Source: Australian Bureau of Statistics

The COVID-19 pandemic has been milder in Australia than elsewhere, with a total of 26,942 cases confirmed as of the 22nd September 2020. Though a current outbreak in Melbourne, Victoria has seen a large surge in new cases. Because of the lower number of cases, confinement has been less strict in Australia than places like Italy, Spain, UK and even New Zealand.

Even with the lower level of confinement, the Australia Federal Government undertook a massive macroeconomic support policy, including temporary wage subsidies, cash-flow assistance to firms, and doubling of the value of unemployment benefits with expanded eligibility to limit the economic shock. Direct fiscal support between March and May by both Federal and State Governments amounted to around eight percent of 2020 GDP.

In addition to the fiscal support from both the Australian Federal and State Governments, the Reserve Bank of Australia (RBA) has been using monetary policy as well. Since the start of March 2020, the RBA has reduced the official cash rate (OCR) by 50 basis points to 0.25 percent. The RBA has also setup a term funding facility (TFF), which provides authorised deposit-taking institutions (ADIs) access to around A$200 billion in funding from the RBA. The funding is fixed for three years at a fixed interest rate of 0.25 percent. The objective of this funding is to provide an incentive to the ADIs to lend to small and medium sized businesses. Lastly the RBA has been purchasing Australian Government Bonds (AGS) to achieve a target of 0.25 percent on three-year bonds. As at the end of August 2020, the RBA holds A$76.5 billion in bonds, up from A$16.3 billion at the end of February 2020.

At present the RBA is forecasting that Australia will see a further decline in GDP for the second half of the year, before rebounding with four percent growth in 2021. In addition the RBA is forecasting unemployment to still rise to 10 percent by the end of 2020, before slowing declining to seven percent by the end of 2022.


China should no longer be thought of as a place of low wage labour making cheap toys and textiles. The country’s GDP per capital currently sits at over 14,500 per person according to OECD data, planting it squarely in the “middle income” bracket. We note this is true even if you discount the extent to which official statistics are biased upwards.

This rise to middle income was on the back of policymakers being generally more economically open than their predecessors.

New Zealand exporters enjoy a unique situation due to the eradication policy as a response to COVID-19. Chinese based importers are very strict on importing goods and will not accept goods from factories that have had cases of COVID-19. Cases of the virus here are low by international standards so our exporters can place more confident guarantees on COVID-free production facilities and give Chinese importers confidence.


India has almost 1.4 billion people and a population pyramid showing a large mass of young, productive, increasingly urban, people. These demographic facts point to a country with potential to increase living standards of even the poorest people by leaps and bounds over the coming decades.

These growing living standards of India’s population offer opportunities for New Zealand businesses to export goods to India, and to import goods from India. India’s young population includes a large cohort of well educated (often in STEM subjects) workers.

Geopolitical forces are currently conspiring to give India the opportunity to replace China as the origin of technological manufacture. We note that in 2020 Apple has begun investing in production facilities in India to replace those in China.

United States

The US labour market rebounded in August, as the unemployment rate fell by almost two percentage points, to 8.4 percent. Nonfarm payrolls increased by 1.37 million, including the hiring of 238,000 temporary Census workers, according to the Bureau of Labour Statistics.

Source: Bureau of Labour Statistics

It is still worrying that in recent weeks, a host of companies from American Airlines Group Inc. and United Airlines Holdings Inc. to Ford Motor Co. and Bed Bath & Beyond, have announced plans to cut jobs. The supplemental $600 in weekly unemployment benefits and small-business aid expired and there has been no clear indication what support will be provided in the near future.

The US election will take place on 3 November. The emphasis for Biden and Trump, up to Election Day, will be how the government navigates the economic downturn, focussing on support for unemployed, getting small businesses back up and running, debt forgiveness, health care reforms, and taxes.

Europe (incl. UK)

As Laurence Boone, OECD Chief Economist, said recently, there is no way to sugar coat the global economic outlook with the most dramatic contraction since World War Two, with no end in sight. There is less household consumption, less business investment in machinery and equipment, less industrial production, less global trade, lower GDP, and higher unemployment.

Source: Eurostat

The June OECD Economic Outlook had two projections: one where COVID-19 transmission slowed and economic life resumed gradually, and a second where lockdowns, containment measures, and travel restrictions continued to be a feature of daily life as the pandemic endured. The second projection reflects the current global situation where disruption of economic activity and continued uncertainty are ongoing features of the “new normal”. The OECD strongly recommends fiscal stimulus not be withdrawn prematurely to ensure economic growth, and to avoid the fiscal mistakes of the post-GFC period that reversed some of the early gains. Fiscal support measures focusing on active labour market programmes, job retention schemes, increased participation in training, and equity investment in small businesses are needed to ensure unemployment does not worsen.

On 16 September, the EU Parliament voted on authorising the borrowing of €750 billion on the financial markets to finance the implementation of the Next Generation EU Recovery Instrument (NGEU). Much of the debate has been on sustainable financing of the recovery, including introducing taxes on transnational polluters and multinational corporations, to ensure the debt does not become a burden for the next generation. Additionally, the EU Commission has recommended that member governments invest recovery funds in clean energy technologies, accelerating the development and use of renewable energy sources, and renovating public and private buildings to improve energy efficiency. Investing in improved transport infrastructure and digitalisation are also recommended. Parliament intends for the recovery fund to be in place by 1 January 2021.

Brexit continues to be a focus for the UK Government as the end of the transition period looms. The Internal Market Bill, designed to enable goods and services to flow freely across the UK when it leaves the customs union, will be voted on at the end of September. While the Government says the Bill contains vital safeguards to avoid a hard border in Ireland, it also gives power to change aspects of the legally binding EU withdrawal agreement, risking a breach of international treaty obligations. The Northern Ireland Protocol contained in the Bill has potential to negatively impact trade negotiations with other countries as a result, and increases the risk of the “no deal” scenario.

07. Forecast data tables

2017 2018 2019 2020 2021 2022 2023 2024
Actual Actual Actual Actual Forecast Forecast Forecast Forecast
annual average % change, March years
GDP (expenditure measure) 3.8 4.0 2.9 2.2 2.4 5.3 2.7 2.5
GDP (production measure) 3.7 3.1 3.1 1.5 -4.6 5.3 0.6 0.6
Private consumption 6.4 4.6 3.3 2.3 -3.7 4.9 2.2 2.1
Government consumption 2.3 3.0 3.9 4.5 5.1 2.5 2.2 2.2
Housing investment 8.7 -1.2 1.4 1.4 -14.7 7.0 2.7 2.7
Business investment 0.3 11.1 5.0 2.5 3.5 3.9 3.9 3.9
Exports 1.7 3.6 3.2 -0.2 -9.1 4.6 1.9 1.9
Imports 5.6 7.8 4.4 1.0 -18.9 4.9 1.6 1.6
June quarters
Employment (QES annual % change) 3.0 1.2 1.0 0.8 -3.5 1.5 2.0 2.2
Unemployment (% of labour force) 4.8 4.5 4.0 4.0 8.5 8.2 7.5 6.8
Net migration (annual 000s) 58.5 48.6 52.3 82.7 1.5 10.5 20.3 30.0
annual % change, March quarters
GDP deflator (average annual % change) 2.3 2.8 1.1 2.9 2.3 1.8 2.0 2.2
Wages (avge hourly earnings) 1.5 3.5 3.4 3.6 3.2 3.2 3.2 3.2
Consumer prices (CPI) 2.2 1.1 1.5 2.5 1.7 1.7 1.7 1.7
Producer prices (PPI outputs) 4.1 3.5 2.6 2.3 2.6 2.6 2.6 2.6
June years
Current account balance ($bn) -7.5 -10.4 -11.6 -5.8 -7.5 -8.0 -8.2 -8.9
Current account balance (% of GDP) -2.7 -3.6 -3.8 -1.9 -2.3 -2.3 -2.3 -2.3
Net international investment position (% of GDP) -54.5 -52.5 -55.2 -58.4 -57.5 -57.2 -56.8 -56.4
Government OBEGAL ($bn) 4.1 5.5 7.4 -23.6 -40.4 -19.9 -15.9 -15.0
Government OBEGAL (% of GDP) 1.5 1.9 2.4 -7.7 -12.4 -5.8 -4.4 -4.0
average levels, March quarters
Exchange rate (TWI) 78.0 74.9 74.0 70.9 72.3 72.0 72.0 72.0
90-day bank bill rate 2.0 1.9 1.9 1.1 0.0 -0.2 -0.2 -0.2
10-year bond rate 3.3 2.9 2.2 1.3 0.5 0.4 0.4 0.4
Memo items
Merchandise export receipts (fob $m, June years) 47,653 53,062 56,841 57,837 59,628 61,231 62,758 64,172
Merchandise import payments (cif $m, June years) 51,131 57,094 61,508 58,524 60,336 62,373 64,528 66,701
International visitor arrivals (000s, March years) 3,534 3,812 3,864 3,652 33 89 381 1,018
Residential new building consents (000s, March years) 30.6 31.4 34.5 37.5 38.0 37.8 36.5 36.3
New car registrations (000s, March years) 259.4 272.0 247.1 237.5 221.7 227.3 231.2 234.7
Core retail sales nominal (annual % chge, March years) 6.2 5.7 4.2 4.7 -0.8 4.0 1.6 1.6
Labour market indicators
2017 2018 2019 2020 2021 2022 2023 2024
Labour market indicators Actual Actual Actual Actual Forecast Forecast Forecast Forecast
June quarter
Full-time employment (000s) 1,969 2,043 2,089 2,114 2,032 2,060 2,098 2,136
Part-time employment (000s) 540 545 535 540 528 538 553 573
Total QES employment (000s) 1,938 1,961 1,981 1,998 1,927 1,955 1,995 2,039
FTE employment growth (annual % change) 3.0 1.2 1.0 0.8 -3.5 1.5 2.0 2.2
Unemployment (000s) 122 119 106 108 234 230 213 193
Official unemployment rate (% of labour force) 4.8 4.5 4.0 4.0 8.5 8.2 7.5 6.8
Labour force (000s) 2,632 2,706 2,729 2,762 2,794 2,828 2,864 2,902
Participation rate (% of labour force) 69.7 70.5 69.9 69.4 68.8 68.4 68.2 68.0
Not in labour force (000s) 1,141 1,130 1,173 1,221 1,266 1,305 1,337 1,364
Working age population (000s) 3,773 3,836 3,902 3,983 4,060 4,133 4,202 4,267
Migration (annual year to June)
Gross inflow (000s) 144,754 140,950 141,781 159,045 10,000 20,000 30,000 40,000
Gross outflow (000s) 86,248 92,329 89,482 76,395 8,500 9,500 9,750 10,000
Net inflow (000s) 58,506 48,621 52,299 82,650 1,500 10,500 20,250 30,000
Merchandise export receipts
2017 2018 2019 2020 2021 2022 2023 2024
Merchandise export receipts Actual Actual Actual Actual Forecast Forecast Forecast Forecast
annual $m, June years
Dairy 12,502 14,137 15,084 16,581 17,244 17,848 18,383 18,843
Meat 6,238 7,276 7,924 8,529 8,785 8,961 9,185 9,414
Wool 524 544 550 433 433 433 433 433
Fish 1,676 1,708 1,901 1,795 1,822 1,849 1,868 1,886
Horticulture 3,430 3,613 4,236 4,549 4,777 4,968 5,141 5,296
Alcohol 1,735 1,776 1,898 2,000 2,081 2,153 2,223 2,290
Forestry products 5,493 6,403 6,916 5,581 5,692 5,806 5,922 6,041
Aluminium 956 1,124 1,174 1,028 1,033 1,033 981 883
Machinery & transport eqpmt 2,450 2,564 2,612 2,372 2,419 2,468 2,530 2,605
Petroleum 713 631 603 712 715 719 723 728
Other 11,936 13,287 13,943 14,258 14,628 14,994 15,369 15,753
Exports of Goods (fob) 47,653 53,062 56,841 57,837 59,628 61,231 62,758 64,172
% change 2.0 11.4 7.1 1.8 3.1 2.7 2.5 2.3
as a % of GDP 17.3 18.1 18.7 18.8 18.3 17.9 17.5 17.0
Balance of Payments on Current Account
2017 2018 2019 2020 2021 2022 2023 2024
Balance of Payments on Current Account Actual Actual Actual Actual Forecast Forecast Forecast Forecast
annual $m, June years
OT trade balance (fob-cif) -3,478 -4,031 -4,667 -687 -707 -1,142 -1,770 -2,529
BoP conceptual adjustments 658 540 827 614 1,400 1,400 1,400 1,400
BoP merchandise trade balance -2,820 -3,491 -3,840 -73 693 258 -370 -1,129
Services exports 23,339 25,148 25,950 23,804 9,974 10,461 18,351 23,273
Services imports 18,578 20,246 22,848 21,808 10,524 10,943 18,187 22,891
Services balance 4,760 4,902 3,102 1,995 -551 -482 164 382
Balance on goods and services 1,940 1,411 -738 1,922 142 -224 -206 -747
Investment income balance -8,982 -11,561 -10,463 -7,003 -6,958 -7,109 -7,264 -7,422
Transfers balance -434 -257 -396 -684 -684 -684 -684 -684
Current Account Balance -7,476 -10,407 -11,596 -5,765 -7,500 -8,017 -8,154 -8,853
as a % of GDP -2.7 -3.6 -3.8 -1.9 -2.3 -2.3 -2.3 -2.3
Government accounts
2017 2018 2019 2020 2021 2022 2023 2024
Government accounts Actual Actual Actual Estimate Forecast Forecast Forecast Forecast
annual $m, June years
Direct taxation 48,755 51,775 56,395 55,175 55,340 59,310 62,275 65,390
Indirect taxation 26,890 28,450 30,075 29,755 29,845 31,985 33,585 35,265
Miscellaneous revenue 6,140 6,555 7,005 6,820 6,840 7,330 7,700 8,085
Core crown revenue 81,785 86,780 93,475 91,750 92,025 98,625 103,560 108,740
as a % of GDP 29.8 29.6 30.8 29.8 28.2 28.9 28.9 28.9
Social security 25,295 26,000 28,740 44,030 41,395 39,345 40,015 41,400
Health 16,225 17,160 18,270 19,890 24,130 22,345 22,405 22,485
Education 13,280 13,630 14,295 16,320 16,220 17,500 17,200 17,260
General expenditure 18,005 20,290 21,985 25,365 38,415 32,085 33,120 35,380
Debt servicing 3,535 3,495 3,730 3,230 2,045 1,410 1,700 2,365
Core crown expenditure 76,340 80,575 87,020 108,835 122,205 112,685 114,440 118,890
as a % of GDP 27.8 27.5 28.7 35.3 37.4 33.0 31.9 31.6
Memo items
Total crown OBEGAL 4,065 5,535 7,370 -23,615 -40,355 -19,850 -15,880 -15,020
as a % of GDP 1.5 1.9 2.4 -7.7 -12.4 -5.8 -4.4 -4.0