Coronavirus' economic impact could hit 'every sector' in New Zealand - ANZ chief economist

The economic consequences of the coronavirus are developing at an "exponential speed" and will likely impact every sector of New Zealand, according to a leading economist. 

Banks are predicting that coronavirus - which has disrupted trade routes, hampered global tourism and put pressure on public services - will have a severe impact on economies worldwide. Already, Aotearoa's tourism, forestry, and seafood industries have been adversely affected. 

ANZ's latest forecasts suggest negative consequences for New Zealand's GDP and predict unemployment to rise as sectors are forced to cut jobs in response to the virus. The bank also continues to predict the Reserve Bank will cut the OCR by 50 basis points later in March and then by another 25 basis points in May, taking it to 25 basis points. 

On Monday, BNZ began predicting a recession, which is two consecutive quarters of negative growth. Chief economist at ANZ Sharon Zollner told The AM Show that she "absolutely" fears a recession.

"We cannot keep up to date with our forecasts but I am pretty sure the next edition [of forecasts] will be less positive than the ones before and that is going to be the ongoing habit," Zollner said.

Asked if she was predicting a recession, Zollner said ANZ's latest GDP numbers hadn't been updated in 10 days, which "in this environment is an eternity", but "everyone is clearly heading in that direction."

Zollner said the virus is having a very different impact on our economy than other financial crises. She said the "exponential speed" of developments will make it difficult for governments to develop policies. 

"I fear this is rapidly turning into the every sector, everywhere, every trading partner shock. So, we cannot respond to it like we do to a normal cyclical slowdown in our trading partners, this is rapidly becoming something else," she told The AM Show.

"There is going to have to be a degree of winging it as we go along and that is going to be true of every government. How do you stimulate an economy if people aren't behaving in normal ways?

"Every government around the world is going to really struggle to come up with policy that will actually be effective. In the short-term, basically we are just going to have to ride this out. You can't tell people, on the one hand, to stay home, and on the other hand, to go out and spend. You have to pick your battles."

The rapidly changing situation also makes it difficult to predict potential job loss numbers, Zollner said.

"I couldn't put a number on it. We can't even keep up with our GDP forecasts… pick a number," she said.

"We don't know how deep this hold is going to be. The automatic stabilisers will kick in, the unemployment benefits and the like. The tax revenue will fall on the other side, so you are going to have a big hole in the Government books."

Finance Minister Grant Robertson announced on Monday that the Government was working on a "Business Continuity Package" in response to the coronavirus.

"New Zealand is well-placed to respond to COVID-19. We have been running surpluses and our net debt position at 19.5 percent of GDP is well below what we inherited, and well below other countries," Roberston said.

Details of the continuity package are being worked through, but it will include targeted wage subsidies for the most-affected sectors, something Zollner believes could be broadened out as sectors become impacted.

Zollner said she believes the Government does understand the seriousness of the virus and that the surpluses built up will be essential in helping those affected. 

Among several measures the Government has already announced is removing the Ministry of Social Development (MSD) stand-down period, and encouraging MSD and the IRD to work with businesses and employees on issues like provisional tax readjustments, late payment and filing fees, wage instalments plans and income support. 

Zollner on Monday suggested the Government halt a planned minimum wage increase next month, saying it would take the pressure off businesses.

"Firms are going to deal with any cost increases at the moment, whether that is in wages or rents or maybe they can't get their usual inputs from China and have to source it somewhere else. Firms are going to be in survival mode this year," she added on Tuesday. 

However, Prime Minister Jacinda Ardern poured cold water on that idea on Monday, saying the increase would provide consumers with more money to spend at businesses.

"I think one of the benefits we have relative to other economies is that not only are we well-placed in terms of low debt, our position around surpluses, the upgrade package and that stimulus already going into the economy," Ardern said.

"Also, we have to keep in mind that what we need people to keep doing is continue to spend and consume," Ardern added, which she said is "part of keeping the economy ticking over". 

Studies in the United States into the effect of minimum wage increases during recessions have found mixed results in terms of how employment is impacted.