One of the country's big banks is tipping interest rates to go negative next year, as the international economic impact of the COVID-19 holds back New Zealand's recovery.
While ASB doesn't expect the proper economic recovery to start until 2023, in the meantime New Zealand's doing better than initially feared thanks to the successful strategies used to limit the local spread of the virus, which has killed more than 875,000 people worldwide.
"Until COVID-19 is brought under control, economic activity will face periods of disruption," said ASB chief economist Nick Tuffley.
"An effective vaccine to combat the outbreak could still be years away and until then, containment looks to be the best solution. The art will be refining and adapting restrictions and business operations to minimise disruptions."
To promote economic activity, Tuffley says the Reserve Bank (RBNZ) will likely drop the official cash rate (OCR) to below zero for the first time. They're already at a record low of 0.25 percent, but ASB's picking them to fall to -0.5 percent.
"Our change in view is due to the RBNZ's apparent willingness to move the OCR lower after its current forward guidance expires, along with our conviction that current monetary settings do not offer enough economic support. We have pencilled in the first RBNZ rate hike for early 2023, but admit the timing is highly uncertain."
A negative OCR wouldn't result in the bank paying off your mortgage.
"A negative interest rate would be a wholesale rate - it's very, very unlikely anyone going along to the bank for a mortgage would get paid to borrow money - just as it's unlikely that you would have to pay to put money in the bank," ANZ chief economist Sharon Zollner told The AM Show in August.
"It's probably best thought of as an incredibly low interest rate. It would definitely have a downward impact on mortgage rates and other borrowing rates."
By 2023, ASB thinks the recovery will be underway, signified by "above-average rates of GDP growth". New Zealand won't be alone in waiting this long, Tuffley said, but we've got the advantage of a major trading partner that's weathered the COVID storm well - China, where the pandemic began.
Residents in Wuhan, where the virus was first detected, partied last week to celebrate going four months without a local case. Almost all of the sprawling metropolis' residents were tested to be sure.
"China has weathered the pandemic relatively well and is likely to remain a source of support for some of New Zealand's commodity exports. We expect our food-related export earnings to cushion the impact of weaker global economic demand on the broader New Zealand export sector."
Last month's unemployment figures, covering April-June - when the country went from level 4 to 1 after appearing to wipe out COVID-19 - surprisingly fell to 4 percent. Few believed the headline figure, with measures such as the wage subsidy and COVID Income Relief Payment holding off the kind of unemployment seen in other countries, like the US.
ASB in May predicted unemployment would reach 9 percent, and Treasury said 9.8 percent. The bank has now reined in its forecast to 7.5 percent.
GDP still negative
The Auckland lockdown in August would have knocked 0.5 percent off GDP, Tuffley said. Auckland accounts for about 38 percent of the nation's entire economy, Statistics NZ figures show, with economic activity nationwide down 8 percent during the city's 19 days at level 3.
Overall, COVID-19 is expected to cost 5 percent of GDP this year. Tuffley says the rapid move from strict lockdown in March back to level 1 by June "limited the extent of near-term economic carnage".
Australia, which didn't lock down as hard as New Zealand but has experienced much bigger outbreaks, is now expected to lose 4 percent in GDP. Australia has had 30 times as many coronavirus deaths as New Zealand to date, despite a population only six times bigger.
The US, which has had more confirmed cases and deaths than any other country - with a haphazard response typified by President Donald Trump's questioning of his own health officials' advice - is expected to have between 4 and 5 percent shaved off its GDP, according to Goldman Sachs and credit agency Fitch Ratings.
Tuffley's comments are backed up by Nobel Prize-winning economist Joseph Stiglitz, who in an article for a journal published by the International Monetary Fund last week said New Zealand had shown other countries how it's done.
"It's a country in which competent government relied on science and expertise to make decisions, a country where there is a high level of social solidarity - citizens recognise that their behavior affects others - and trust, including trust in government," Dr Stiglitz wrote in Finance & Development.
"New Zealand has managed to bring the disease under control and is working to redeploy some underused resources to build the kind of economy that should mark the post-pandemic world: one that is greener and more knowledge-based, with even greater equality, trust, and solidarity."
The next update to the OCR will be made on November 11.