New Zealand's COVID-hit economy has held up better than expected so far, but the true impacts are about to start being felt, according to a prominent economist.
On Wednesday the Pre-election Economic and Fiscal Update (PREFU) is due, showing the true state of the Government's books. And on Thursday comes the latest GDP figures, which are expected to show we're in the biggest recession in a century.
Kiwibank's picking a 12.5 percent drop for the quarter, ASB 11 percent and the NZIER 10.5 percent. All predicted much bigger drops earlier in the year.
"The bounce out of the lockdown was really vigorous - much more vigorous than anyone really could have expected," ANZ chief economist Sharon Zollner told The AM Show on Wednesday.
But it was "assisted by an enormous fiscal spend-up" that "can't be sustained", she said. The Government has borrowed tens of billions of dollars - at record low interest rates - to spend on things like the wage subsidy, bringing forward infrastructure projects and setting up a rainy day fund, with the future trajectory of the COVID-19 pandemic uncertain.
"It's extremely expensive," said Zollner. "The question is, where do we actually land when that fiscal tsunami starts to recede? And also the tourism hit from the closed border is really a summer story, so we haven't yet felt that either."
Applications for the wage subsidy recently closed, and previous recipients' subsidies have either expired or will be soon.
Economist Cameron Bagrie on Tuesday predicted the PREFU would be "splattered and red", showing levels of debt that could take decades to pay back thanks to our ageing population.
Zollner said it would be a "mixed bag", thanks to the resurgence in spending in the three months we spent under alert level 1.
Finance Minister Grant Robertson on Monday said card spending under alert level 2.5 was on a par with level 1 and the rest of the country, which remains at level 2.
"The short-term impact of the initial move to level 4 will be shown in this week’s April-to-June GDP figures. We've been upfront that there will be a large drop in activity in the June quarter, due to the impact of level 4 to eliminate COVID-19.
"What our consistent health response means is we get a head-start on the economic recovery - economists are forecasting a record quarterly increase in GDP in the September quarter (reported in December) as the economy bounces back."
ANZ's prediction from August 19 - a week after the latest outbreak began - is for a 16 percent rebound in the September quarter.
Zollner says the PREFU will likely show a "sort of GFC-meets-Christchurch-earthquake type deficit for three years in a row, as opposed to just one year", which combined with the loss of tourism over summer, zero immigration, slowed global growth and an inevitable rise in interest rates, will hurt New Zealand in the medium-term.
The silver linings are China - our most important trading partner - has not recorded any cases of community transmission in a month, and concerns around food security are keeping commodity prices high.
"It's not great for humanity, but quite good for New Zealand's export prices," said Zollner.