COVID-19: Economist predicts recession and 'v-shaped' recovery for New Zealand

An economist is predicting New Zealand's recession will be short and sharp in the wake of COVID-19.

New Zealand Institute of Economic Research principal economist Christina Leung gave her verdict on whether New Zealand was in for a recession or a depression, which is defined as more prolonged than a recession.

"Depression is more classed as a prolonged downturn," said Leung, who believes the country will enter a recession but one that will be shorter and sharper.

New Zealand's retail spending has increased and recovered somewhat as we came down the COVID-19 alert levels, Leung said, which shows underlying demand is still there.

"One indicator of recession is two consecutive quarters of decline - it's likely that we are going to be seeing that," she told The AM Show on Wednesday. "What's more important, though, is what's going on after that in the recovery ahead. "When we look at the range of forecasts looking at the year ahead, it is very much, at the moment, expectations of a v-shaped recovery."

Depression would mean economic activity may not bounce back for a long time, she said, and long-term economic impacts could depend on how business confidence.

"We always say that there's a lot of uncertainty around forecasts but this time around there's even more uncertainty than usual," Leung said.

Economist Shamubeel Eaqub told The AM Show earlier this month New Zealand's hard and fast lockdown is starting to show signs of economic benefits.

"Hopefully that means we will reduce the amount of job losses and business failures for now so we can get to some level of normalcy."

Last week, the Organisation for Economic Cooperation and Development (OECD) said the global economy will suffer the biggest peace-time downturn in a century.

Christina Leung is predicting a "v-shaped" economic recovery for NZ.
Christina Leung is predicting a "v-shaped" economic recovery for NZ. Photo credit: Getty/The AM Show

"By the end of 2021, the loss of income exceeds that of any previous recession over the last 100 years outside wartime, with dire and long-lasting consequences for people, firms and governments," said OECD chief economist Laurence Boone.

She urged Governments not to shy away from debt-financed spending. New Zealand's Treasury is borrowing $60 billion - three times its previous record.

"Ultra-accommodative monetary policies and higher public debt are necessary and will be accepted as long as economic activity and inflation are depressed, and unemployment is high," Boone said. 

National Party leader Todd Muller has said "economic management is in our National DNA" and pledged to fix the economy without cutting welfare or increasing taxes.

Labour, currently in Government, has yet to signal its plans if it wins a second term at September's general election but says taxes won't be raised during this term.